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Reinstatement of Policy

Reviewed by Darrel PendryCheckmark | Last updated: April 1, 2021

What Does Reinstatement of Policy Mean?

Reinstatement of policy is the process of restoring an insurance policy back in effect after it has been previously terminated due to various reasons.

An insurance policy can be terminated when the insured has missed the premium payment for several months. A policyholder has no legal obligation to make premium payments, but if he or she fails to pay, the insurer has all the rights to terminate the policy.

To reinstate or renew the policy, the insurer requires evidence of eligibility and full payment of missed premiums. For life insurance, the insured is also required to submit a current medical examination or medical update. Each insurance company will have its own specific requirements or declaration to reinstate.

For a property or liability insurance policy, the insurer might require an insured seeking reinstatement of their policy to sign a declaration of no loss or claim during that gap in coverage.

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Insuranceopedia Explains Reinstatement of Policy

Reinstatement of policy occurs when the contract of the insurance is no longer in effect but the insured wishes, for whatever reason, to restart the coverage. Requirements to reinstate a policy vary from one insurance provider to the other. Moreover, the reinstatement process depends on how much time the policy has lapsed as well as the type of insurance policy. Therefore, reinstatement of the policy is not always available or guaranteed.

For instance, if an insured fails to make payment on the life insurance premium, the policy enters a grace period (an average of 30 days) wherein the insurance company still pays for the death benefits on valid death claims after deducting the unpaid premiums. After the grace period and the policy owner still fails to make payment, the policy lapses and the insurance company no longer pays for the claim in the event that something bad happens to the insured.

Individuals who plan to reinstate their policy should know that the reinstatement of policy is not guaranteed. In the event that the insured developed a major health condition, the insurance company has the right to decline the reinstatement. Before granting the reinstatement, the insurance company will likely ask the insured to complete an application form and provide evidence of eligibility such as getting a new medical exam done.

Lapses in general insurance policies can occur due to non-payment of premiums, a material change in risk during the policy term, or due to a high number of claims. After these concerns are addressed, the insured may be able to apply for reinstatement.

The reinstatement of policy procedures for a general insurance policy (ie. for property or various forms of liability insurance) are similar. There may be an application form that needs to be completed and usually a signed declaration from the insured that they are unaware of any actual or potential losses or claims that took place during the gap in coverage. Any claims originating during this gap in coverage - whether reported or not - would not be covered.

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