Reinstatement (Insurance)

Example

“After missing three months of premium payments, Maria was able to reinstate her life insurance policy by paying the back premiums and passing a medical exam to prove she was still in good health.”

Memory Tip

Think 'RE-INSTALL' your policy - like reinstalling software, you're putting your coverage back in working order.

Why It Matters

Reinstatement allows you to restore valuable insurance coverage without losing benefits like accumulated cash value or original issue age. This can save significant money compared to purchasing a new policy, especially if your health has declined or you've gotten older since the original policy was issued.

Common Misconception

Many people think reinstatement is automatic or guaranteed if they pay back premiums, but insurers often require proof that you're still insurable. Others believe there's no time limit for reinstatement, when actually most policies have reinstatement periods that expire after a certain time.

In Practice

John's $250,000 life insurance policy lapsed after he missed four monthly $150 premium payments. To reinstate within the two-year reinstatement period, he must pay $600 in back premiums plus $50 in interest. Since more than six months passed, he also needs a medical exam. If approved, his policy resumes with all original benefits intact, including the $15,000 cash value that had accumulated over 10 years. Buying a new policy at his current age would cost $200 per month instead of $150.

Etymology

From Latin 're-' (again) and 'instatement' (the act of placing in position), literally meaning 'to place in position again.' Used in insurance since the late 19th century when policy lapses became common.

Common Misspellings

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See Also