Reinstatement

Reinstatement is the restoration of a person or thing to a former position. Regarding insurance, reinstatement allows a previously terminated policy to resume effective coverage. In case of nonpayment, the insurer may require evidence of eligibility, such as an updated medical examination for life insurance, and full payment of outstanding premiums.

Reinstatement of a life insurance policy occurs after the end of a grace period and when the contract is no longer in force. Reinstatement requirements may vary among life insurance providers. There is no guarantee by law for reinstatement terms. The reinstatement process may depend on how much time passed since the policy lapse and the type of insurance policy. Sometimes applying for a new policy may be less expensive than reinstating an old policy.

After nonpayment of a life insurance premium, a policy enters its grace period. During the grace period, the insurance company remains responsible for paying death benefits on valid death claims. If the insurance company does not receive a premium payment during the grace period, the policy will lapse. At this point, the insurance company is no longer responsible for paying a claim.

A life insurance policy may typically be reinstated within 30 days of a lapse without additional paperwork, underwriting, or attestations of health. Insureds often pay a reinstatement premium, which is larger than the original premium.  Insurance companies add the additional reinstatement premium to the accumulated cash value of the policy and pay administrative expenses incurred from the lapse.

After the grace period ends, the life insurance company may still permit the reinstatement of a policy. The insured may be required to make legally binding statements about his health. For example, the insured may have to identify significant, potentially harmful changes in health that occurred after the policy lapsed. If the insured developed a major health condition during that time, the insurance company might decline reinstatement. Also, if the insured provides fraudulent information when applying for reinstatement, the insurance company has grounds to deny a death claim.

After six months from the termination of the policy, an insurance company typically requires the insured go through the underwriting process again for reinstating an insurance policy. Because people tend to face health issues as they age, full underwriting means a higher likelihood of uncovering a health concern that may make reinstatement difficult or impossible.