What is a Reinstatement Provision?
A reinstatement provision is a clause in some life insurance policies that allows the insured to reinstate a lapsed policy provided they meet certain parameters and execute the provision within the specified time frame. Reinstatement provisions most often come into play after a policy has lapsed because of nonpayment.
Reinstatement during the grace period
In order to keep your life insurance policy active, you need to continually make the agreed-upon premium payments.
The day you miss a payment, a clock starts ticking. Life insurers generally offer a grace period of around 30 days. During that grace period, you can reinstate your policy very easily. Usually, you’ll just need to make up the missed premium. You might be subject to interest on that missed payment or a reinstatement premium, too.
Still, though, reinstating a policy during the grace period is significantly easier than doing so afterward.
Reinstatement after the grace period
If the grace period expires without you making up the missed payment, the life insurance policy lapses. If you don’t have a reinstatement provision, that’s that. If you want life insurance coverage moving forward, you’ll need to apply for a new policy.
If you have a reinstatement provision, though, you have options. Yes, you can choose to let the policy lapse at that point, but you can also call on the revision to get coverage back in place. Most reinstatement provisions give you a specific window — like 3-5 years — to reinstate your policy after a lapse.
To reinstate your coverage, you’ll usually need to do two things:
Submit new evidence of insurability (EOI). To qualify for reinstatement, you need to show the insurer that you’re still in a reasonably good state of health. To submit this new EOI, you might need to get another life insurance medical exam and/or complete a medical questionnaire.
Make up your missed payment(s). You need to pay the insurance company everything that you would have paid had the policy not lapsed. If it’s been a year or more since your policy lapse, that means making up all of the premiums you would have paid during that timespan. You might be subject to fees or interest, too.
A reinstatement provision gives you the option to apply for reinstatement. It does not, however, guarantee that your insurer will grant reinstatement. If your EOI submittal turns up any red flags, they could deny reinstatement or increase your premiums accordingly.
That might make it tempting to not disclose any health conditions that have popped up since you initially purchased your coverage — but don’t. If your insurance company learns that you intentionally misled them during the reinstatement process, they can void your policy. And since that truth might not come out until after you pass away and they review your records, it could leave your beneficiaries empty-handed.
The benefits of using a reinstatement provision
If your premiums could go up during reinstatement, you might wonder why you’d bother with it at all.
The main benefit of policy reinstatement hinges on your age. When you reinstate a policy, you still get the premiums based on the age when you initially purchased the policy. If you buy new life insurance, that policy will get priced according to your age now — and life insurance costs increase steadily as you get older.
That means that even if a new health condition means you’ll pay higher premiums after reinstatement, your policy will probably cost less than an entirely new one. If you want to be sure, you can pursue reinstatement with your current insurer while gathering quotes from other insurance providers, then compare the costs.