Definition - What does Liberalization Clause mean?
A liberalization clause is an insurance provision, found mostly in property insurance policies, that extends or limits the coverage of a policy to comply with a new statutory law. The insurance company does not need to notify the insured about the change in coverage when this provision is present in a policy.
Insuranceopedia explains Liberalization Clause
A liberalization clause exists in many property insurance policies because insurance companies must comply with any new regulation the state passes. However, due to the extra company expense of notifying each policyholder or charging each policyholder for the added coverage that a new insurance law may create, the company is not required to notify policyholders of these changes.
For instance, a state may pass an insurance law that compels property insurance to cover earthquake damage. In that case, this coverage is added to every property insurance policy immediately. However, it may also do the opposite: The law may strip every policy of earthquake coverage. Because of the liberalization clause, the company may perform these actions without informing the insured.