Auto Insurance Extensions: Do auto insurance companies give extensions on payments?

Auto insurance extensions are not offered by all insurance companies. Some companies may offer auto insurance extensions of up to a month before implementing fees.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 17, 2021

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Here's what you need to know...

  • When you buy insurance, you must make a payment at the inception of your policy for your coverage to take effect
  • Consumers are billed for coverage prior to the service being delivered instead of after the receiving the service
  • If you’re unable to pay your premiums in full, you may be able to set up payment options with the carrier
  • Installments can be paid once every month, once every quarter, or semi-annually, depending on your budget. Monthly payments are often the most popular option for drivers
  • Inquire if your insurance company has a grace period

Some bills are more important than others. If you’re like many consumers who are living paycheck to paycheck, there may come a time where you’ll be forced to decide which bill to pay on time and which to pay late. If you call customer service, some companies will be more understanding, especially if it’s not a regular thing. Others may impose financial and other penalties, cancel the service, and more. These types of complications are much more common when you don’t communicate with the companies offering you certain services.

As you’re sifting through all of your invoices and plugging the due dates into your organizer, it’s crucial that you consider the consequences of being late on a payment before you make one bill a priority over another.

Your auto insurance company isn’t very forgiving when you’re late making your premium payments. Some of your service providers might give you as much as a month to pay your invoices before assessing a fee but that’s generally not how auto insurance billing works. During that time, you may receive multiple notices, ultimately giving you a date at which they will cancel your policy if you don’t make your payment. If your policy does lapse due to nonpayment, the next company you sign up with would penalize you with higher rates. Some might not accept you for coverage at all.

You could save money by comparing car insurance quotes and finding a price that beats your current insurer. Enter your zip code in our free comparison tool above.

When do you need to pay for auto insurance coverage?

Auto insurance isn’t a consumer good. When you buy a policy, you’re not just entering into an indemnity contract, you’re also paying for a service. Once you enter a contract, your rate is set typically for 6-12 months based on your contract period. During that time, your insurer cannot raise or lower your rates unless you make changes to your policy. So they know exactly how much you owe.

If you don’t have a loss, the only thing that you pay for when you make premium payments is the service that your insurer offers. Most people prefer to go the term without using their actual coverage.

Since there’s never really any guarantee that you’ll use your policy, the carrier has to bill you in advance for all of the coverage options that you’ve selected at policy inception. This is very different from how most service providers invoice their clients.

For example, an electric company will bill you after you’ve used a certain amount of electricity. This is because the service cost is based on consumption. Of course, if you file a claim during your contract period, your rates could go up at renewal.

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When is your first payment due?

A lot of service providers charge their clients a deposit to activate the service. When you’re buying insurance, the first payment may include a down payment. Whether or not you’ll be billed additional premiums depends on the carrier that you choose and where you live. If you’re using a payment plan, your initial payment could also include administrative fees.

Whether or not you’ll be billed additional premiums depends on the carrier that you choose and where you live. It’s typical to pay a down payment of between 20 and 33 percent of your policy premiums.

If you’re buying coverage from a substandard carrier, the chances that a down payment is due are going to be high. Some companies charge a percentage of the total premium and others will charge you for two or three months of premium upfront. This is most commonly the only option for drivers with poor credit, a bad driving record, and other complications.

After the down payment is collected, the coverage will take effect on the date that you choose. The balance will then be equally divided based on the installment plan that you choose.

Can you choose any date for the coverage to take effect?

You don’t have to start your coverage on the date that you make your initial payment. When you’re applying for coverage, the agent is going to ask you when you want your coverage to take effect.

If you’re in a rush to switch carriers or activate coverage, you should say immediately. Those who aren’t in a rush can select a future date.

You aren’t obligated to pay your premiums in full the moment that the policy is to take effect. While this is the most convenient option for consumers and the preferred payment method of carriers, most companies will give you installment options to make it easier for you to cover your bills.

Here are some of the options that you can choose from:

  • 5-Pay Plan – pay two months down and skip your last month
  • Monthly and EFT – pay your premiums each month on the same due date either manually or by setting up an automatic EFT draft from your bank account
  • Quarterly – pay once every three months on your annual policy
  • Semi-annually – pay your six-month policy in full or pay your annual policy in two equal installments

Know the Due Date on Your Policy to Avoid Lapses

Your policy due dates aren’t just suggestions made by your insurer as to when you need to make your premium payments. Paying in advance is great, but you must make your payments on-time or you’re at risk of losing your coverage for non-payment.

The leading causes of a mid-term insurer initiated cancellation is when the policyholder doesn’t pay premiums on time.

When you first apply for insurance, the first due date is going to be the day of the month when the policy begins. After that, no matter which installment you choose, your payment will be due on that same day of the month.

If it’s on a weekend, the next payment might be extended to the next business day.

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How will you be billed when your payments are due?

Not all insurance companies send bills the same way. While many companies bill by mail, there are more modern companies that only email statements to save money on paper.

You should check to see if you’re going to be billed in your email inbox or by physical mail so that you know what to expect and where to look for your invoices.

Does your insurance company give you extra time to pay your bill?

Insurance companies are legally allowed to cancel your insurance when you don’t pay your premiums. Since you’re at risk of having your insurance terminated when you don’t pay your installments by the due date, you need to know if your insurer will give you extra time to pay.

When you’re given extra time to pay your premiums, the buffer of time that you’re given is called a grace period.

This is the time after the due date on your bill that you’ll have to submit a payment without having to worry about losing your coverage.

It’s nice to have a grace period on the contract, but the extension isn’t always guaranteed.

How long is your grace period?

There’s really not a definitive period of extra time that all insurance companies give their clients to pay their bills. In some states, a grace period of at least 10 days is required.

This requirement is set by requiring insurers to send the policyholder a notice in writing that the policy is being terminated for non-payment.

If there’s no written notice requirement for non-payment terminations in your state, there’s no guarantee that carriers will give you any type of extension.

When there’s no requirement set forth by the insurance department, the grace period could be as short as one day or as long as 30 days. You’ll need to look at your contract or call your agent to ask how long that you have to pay before the insurer will take action.

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Consider Changing Your Installment Plan

If you can’t pay all of your premium at once and you’re not able to before the grace period is up, one of your options is to change your installment plan before the payment is due.

Policyholders who are paying annually or semi-annually might find that quarterly payments make more sense. If you’re on a very limited budget, you can even select a monthly installment option for now and then change it later when your finances are in order.

Insurance companies don’t hand out extensions. If you are late paying your bills, you could quickly go from being insured to being uninsured.

Since you legally have to have insurance to own a car, you should avoid a lapse at all costs. Be sure to shop around for coverage online and see what installment options are available.

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