What is 'Reinstatement'
Reinstatement is the process of re-establishing the status of a person, company or law. In regards to insurance, reinstatement allows a previously terminated policy to resume active coverage. In case of nonpayment, the insured may be required to provide evidence of eligibility, such as taking a medical examination for life insurance, or pay the insurance company for the missed premium dates.
BREAKING DOWN 'Reinstatement'Reinstatement of a life insurance policy happens after the grace period ends and the contract is no longer in force. Reinstatement requirements may vary among life insurance providers and are not guaranteed by law. The reinstatement process may depend on how much time elapsed since the policy lapse and the type of policy being reinstated. Therefore, applying for a new policy may be less expensive than reinstating an old policy.
Reinstatement Within 30 Days of Lapse
After nonpayment of a life insurance premium, a policy enters grace period status. Although the policy is technically delinquent, the insurance company remains responsible for paying a death benefit if a valid death claim is filed for the insured. If the insurance company does not receive a premium during the grace period, the policy lapses. The insurance company is no longer responsible for paying a death claim.
A life insurance policy may typically be reinstated within 30 days of a lapse without additional paperwork, underwriting or attestations of health. A reinstatement premium, larger than the original premium, is typically required. The extra value of the larger premium is added into the cash value of the life insurance policy, if any, and/or administrative expenses the company incurs from a lapsed policy.
Reinstatement After 30 Days of Lapse
After the grace period ends, the life insurance company may still let an owner reinstate a policy. The insured may be required to make legally binding statements about his health. For example, the insured may have to identify any major, potentially harmful health changes that occurred after the policy lapsed. If the insured developed a major health issue during that time, the insurance company may decline reinstatement. In addition, if the insured provides fraudulent information when applying for reinstatement, the insurance company has grounds for denying a death claim.
Reinstatement with Underwriting
After six months’ elapse since termination of the policy, an insurance company typically requires the insured go through the underwriting process again for reinstating a 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.