Texas General Lines — Life, Accident, Health and HMOGeneral InsuranceMedium
A policyowner has allowed their life insurance policy to lapse due to non-payment of premiums. The policy contains a provision that allows the policyowner to reinstate the policy, usually by paying back premiums, interest, and proving insurability. This provision is known as the:
- AReinstatement provision
- BNonforfeiture option
- CAutomatic premium loan
- DGrace period
Show answer & explanationAnswer & explanation
Correct answer: A. Reinstatement provision
The reinstatement provision allows a lapsed policy to be put back in force, typically requiring payment of past due premiums with interest and proof of insurability. This is distinct from a grace period, which is a short time after the premium due date during which the policy remains in force.
Why the other options are wrong
- B. Nonforfeiture options (e.g., cash surrender, extended term, reduced paid-up) deal with what happens to cash value if a policy is surrendered or lapses, not how to bring it back in force.
- C. An automatic premium loan is a policy rider that uses the policy's cash value to pay an overdue premium to prevent lapse.
- D. A grace period is a short period after the premium due date during which the policy remains in force without premium payment.
Reinstatement Provision
A standard life insurance policy provision that allows a policyowner to restore a lapsed policy to full force and effect, usually within a specified period, by paying back premiums, interest, and providing proof of insurability.
- Typically available for 3-5 years after lapse.
- Requires payment of all back premiums plus interest.
- Requires proof of insurability (e.g., medical exam).
- Policy returns to its original status, including cash values and incontestability period.
Memory trick: Grace saves before it's gone; Reinstatement brings it back on.