What to Do if You Can’t Pay for Insurance Due to Coronavirus

During the coronavirus pandemic, relief options like grace periods and payment plans may be available.

Kayda NormanJuly 29, 2020
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If you’re tight on money due to the coronavirus pandemic, insurance premiums may be relatively low on your list of concerns. Instead of simply not paying your bills, be proactive and reach out to your insurer. Companies are increasingly willing to work with customers facing financial hardship right now.

Some state insurance departments are encouraging or ordering companies to temporarily do one or more of the following:

  • Not charge late fees or other penalties.

  • Create flexible payment plans.

  • Pause policy cancellations for nonpayment.

  • Extend grace periods, typically a 30-day period after payment is due when you can still pay and won’t lose coverage.

"It’s important to call the insurance company, explain the situation and see if they can provide any type of relief. Ask if there is an option other than canceling your coverage,” says Erin Ardleigh, founder of Dynama Insurance, an independent brokerage based in New York City.

Here’s a more detailed look at what you can do if you can’t pay your bills during the pandemic.

Auto insurance

Most states require drivers to have car insurance, which means losing coverage is not a legal option unless you stop driving. But you can take advantage of COVID-19 auto insurance refunds or make adjustments to your policy.

Many of the country’s biggest auto insurers are giving customers a partial premium refund during the pandemic. For example, Allstate is giving an average of 15% back to car insurance customers for premiums paid in the months of April, May and June. Meanwhile, State Farm is working to enact an 11% average rate cut for policies in all states.

As a last resort, you can consider reducing coverage. Most states have minimum liability insurance requirements, but you may be able to drop optional coverages. If you have a car loan or lease, your contract likely requires comprehensive and collision insurance.

If you aren’t driving your car at all during the pandemic, and don’t have a loan or lease on it, other options include:

  • Canceling car insurance.

  • Reducing coverage to comprehensive-only insurance, which protects your vehicle from damage while it’s stored.

If you decide to pursue any of the above options, you may have to file an “affidavit of non-use” with your state’s department of motor vehicles. In addition, canceling car insurance will likely result in higher insurance rates when you buy coverage again.

Life insurance

Like other insurers, life insurance companies are offering extended grace periods during the pandemic. But since life insurance isn’t required by regulators or loan contracts, you could drop coverage without facing immediate consequences.

If you can’t pay for your life insurance during the coronavirus outbreak and want to keep your coverage, your options differ depending on whether you have term or permanent insurance. If you have term life, you’ll likely lose coverage if you can’t pay after the grace period. However, if you have a permanent life policy and want to keep it, you have more options.

For example, many whole life policies have built-in options to pay your premium in other ways. For one, the insurer may be able to use some of the cash value of the policy, Jon Voegele, board chair of Life Happens, an educational nonprofit supported by insurers and brokers, said in an email.

Using your policy’s cash value will lower the death benefit and possibly cause coverage to lapse if you take out too much.

Here are some other ways to lower the cost of your life insurance premium:

  • Use dividends. Some life insurance companies offer permanent policies that pay policyholders dividends, or a portion of the company’s profits. You can use these dividends to pay your insurance premiums.

  • Reduce your death benefit. This isn’t always the best option, but it can help you lower your term or permanent premium and still retain some form of coverage.

  • Switch to term life. Depending on the company, you may be able to cash out your permanent policy and buy term life insurance instead. Term life is cheaper than whole life but will only provide a death benefit if you die during the policy term.

Homeowners insurance

Some home insurers are extending grace periods, not charging late fees, and won’t cancel home insurance coverage for a limited period of time, depending on states' guidelines.

If you’re struggling to make payments after the grace period, you could consider reducing coverage. It’s best to keep enough insurance to rebuild your house if it’s destroyed, so this should be a last-ditch option.

Thinking about canceling coverage altogether? Although homeowners insurance isn’t required by law, if you have a mortgage, your lender likely requires it. Even without a mortgage, canceling your policy or even reducing coverage can leave you in dire financial straits should you be sued or your home or property damaged.

Health insurance

Several states banned health insurers from canceling coverage due to nonpayment, or collecting reinstatement or late fees. However, not all of these policies have been extended past May — check with your insurer for updates. If you have a Marketplace plan and qualify for reduced premiums, you’ll have a 90-day grace period to pay your monthly bill.

You can only sign up for a health insurance plan during the annual open enrollment period unless you have a qualifying life event like the loss of a job or a change in income. These restrictions might prevent you from switching to a cheaper insurance plan.

If you have a Marketplace insurance plan and your household income has changed, update your health insurance application as soon as possible. You could qualify for additional savings and a lower monthly premium.

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