3.9.6 The Reinstatement Clause
It stands to reason that if you don't pay for something as promised, the promise is broken. If premiums are not paid, the insurer can cancel the policy because of a broken promise. If all monies due are not paid within the grace period, the contract will lapse. The reinstatement clause stipulates the conditions under which the policy can be restored. If the insured wishes to reinstate the contract, all overdue premiums plus interest must be paid.
The lapsed policy can only be reinstated within the policy's specified period of time from the date of cancellation; usually policies may be reinstated within three years after lapse. If the policyowner goes beyond that time, a new contract must be purchased. It is often wiser to reinstate a contract rather than purchase a new one. Most likely, the premiums would be higher on a new contract due to the mere fact that the insured will have gotten older. The insured would most likely be required to provide evidence of insurability; however, some insurers will waive this requirement for lapses of less than two months. When a policy is reinstated, the incontestable clause is usually regenerated. If the policyowner had taken out any loans on the policy, repayment of the full loan amount may be required; however, if the policy had been previously surrendered for its cash value, it would not be subject to the terms of the reinstatement clause.
Reinstatements become effective immediately for accidents. In most cases, it does not become effective for illness coverage until after 10 days from the date of reinstatement. This is to avoid adverse selection (preexisting conditions).
Most insurers will require the following when reinstating a lapsed policy.
- All past due premiums, plus interest if applicable, must be paid.
- Any outstanding loans on the lapsed policy may be required to be paid back.
- Evidence of insurability may be required.
When a policy is reinstated, a new suicide exclusion does NOT go into effect again due to the lapse. (See Lesson 3.9.11)
