Definition - What does Automatic Reinstatement mean?
Automatic reinstatement is an insurance policy provision that states that the policy limit will be restored after a claim is paid out. In other words, it reinstates the original policy limit after the insurer pays for a covered loss.
Automatic reinstatement may also be known as maximum aggregate limit of indemnity.
Insuranceopedia explains Automatic Reinstatement
For example, under a $100,000 homeowners insurance policy, the insured suffers a covered loss of $40,000. Once the insurer pays out the $40,000 claim, the original limit of $100,000 is reinstated. Thus, the insured would still be covered for up to $100,000 thereafter for a new, unrelated claim, rather than only $60,000 of coverage for that policy period.
A policy may allow for one or more reinstatements of the policy limit and is not a guaranteed feature, so it is important for a policyholder to understand the full terms of their policy.
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