Understanding New Jersey’s Emergency Grace Period for Insurance Premium Payments

Gov. Phil Murphy recently signed Executive Order No. 123 (EO 123), which extended the grace periods during which certain insurance companies will not be able to cancel policies for nonpayment of premiums…

On April 9, 2020, Gov. Phil Murphy signed Executive Order No. 123 (EO 123), which extended the grace periods during which certain insurance companies, including health insurers, life insurers, and property and casualty insurers, will not be able to cancel policies for nonpayment of premiums. EO 123 requires a minimum 60-day grace period for health and dental insurance policies, and a minimum 90-day grace period for life insurance, insurance premium-financing arrangements, and property and casualty insurance, which includes auto, homeowners, and renters insurance.

The New Jersey Department of Banking and Insurance has now issued guidance on how EO 123 will be implemented. Below is a brief summary provided by the Department:

The Department of Banking and Insurance guidance instructs carriers in the individual, small group, and large group health insurance markets to:

• Provide a 60-day grace period to pay insurance premiums and continue paying claims during this period; allow policyholders to amortize any unpaid payments over the remaining policy period (for example, if six months are remaining, the policyholder must be given the option to pay the unpaid premium in six installments in addition to the regular monthly premium);
• Provide those with individual health plans obtained through the federal Marketplace, and receive subsidies, up to a 60-day grace period with claims paid and additional flexibility;
• Waive late payment and fees otherwise due, and not report late payments to credit reporting agencies;
• Refrain from cancelling any policy or contract for nonpayment during the emergency grace periods, and not seek recoupment from any policyholder for any claims incurred during this emergency grace period; and
• Waive certain rules that as a result of the COVID-19 emergency could serve as a barrier to coverage for employees and employers.

The Department of Banking and Insurance is directing property and casualty carriers to:

• Provide a 90-day grace period to pay insurance premiums and continue paying claims during this period; allow policyholders to pay premiums not paid during the 90-day period over the remainder of the current policy term or in up to 12 months, whichever is longer;
• Waive late payment fees otherwise due, and not report late payments to credit rating agencies;
• Ensure that late payments during the 90-day period are not considered in any future premium calculations at any time (i.e. applicable late payments should not be counted for any rating, pricing, tiering attributes, etc.); and
• Permit the grace period to be applied to all installment payments, including renewal down payments, provided that the insured provides notice to the insurer that they wish to continue coverage.

The Department of Banking and Insurance is directing life insurance carriers to:

• Provide at least a 90-day grace period to policyholders or certificate holders to pay life insurance and annuity contracts premiums and allow premiums not paid during the 90-day period to be paid over the course of the following year in up to 12 equal installments;
• Waive late payment fees otherwise due, including any interest permitted, and refrain from reporting late payments to credit rating agencies, during the 90-day period; and
• Extend to 90 days the period to exercise policyholder and contract holder rights and benefits under life insurance and annuity contracts.

Under the guidance, carriers issuing Medicare Supplement plans and insurance premium finance companies must provide grace periods and repayment over a period of time.

The bulletins issued by the Department of Banking and Insurance are available here:

• Bulletin – Health Insurance – Individual Market
• Bulletin – Health Insurance – Small Employer Market
• Bulletin – Health Insurance – Large Employer Market 
• Bulletin – Health Insurance – Medicare Supplement 
• Bulletin – Property and Casualty Insurance 
• Bulletin – Life Insurance
• Bulletin – Insurance Premium Finance Companies

Next Steps 

The extensions are not automatic. Businesses and consumers must contact their insurance company to take advantage of the emergency grace period and to discuss options to pay their premiums over time after the grace period ends.

The Department has directed all carriers to post information on their websites regarding the grace periods. They must also provide policyholders with an easily readable written description of the terms of the extended grace period offered pursuant to the Department’s guidance.

While it is somewhat reassuring for policyholders to hear of these new directions to assist newly cash-strapped policyholders, we do not recommend that anyone invite a fight with an insurance carrier over a claimed loss of insurance coverage by unnecessarily paying any premiums late. Directives need to be interpreted and enforced, and insurance carrier personnel may see things differently and intransigently – or not at all. Succinctly: premiums due are best paid when due.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Charles Yuen, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.