Can a Lapsed Life Insurance Policy Be Reinstated?

A life insurance policy lapses when premium payments are not made, terminating coverage. This means the policy no longer provides a death benefit to beneficiaries if the insured passes away. Common reasons for a policy to lapse include forgotten payments or unexpected financial hardships. While a policy may have lapsed, it is often possible to reinstate it, potentially restoring coverage.

Understanding Reinstatement Eligibility and Requirements

To reinstate a lapsed life insurance policy, specific conditions must be met within a limited timeframe. Most insurers allow reinstatement for three to five years after the policy’s lapse date, as outlined in the original policy contract.

A primary requirement for reinstatement involves paying all missed premiums from the lapse date. Insurers also require interest on these overdue amounts to compensate for the increased risk during non-payment. The interest rate can vary but is often around 6% annually.

Policyholders must provide proof of insurability, demonstrating their health status has not significantly deteriorated since the policy’s original issuance. This assessment involves completing a detailed health questionnaire covering medical history, current health, and lifestyle changes. A medical examination may be required for larger policy amounts or if health changes are disclosed. Insurers might also request access to medical records.

A specific reinstatement application form is required. This form collects updated personal details and health information. Policyholders can obtain this form from the insurer’s website, their insurance agent, or customer service. Accurately complete all informational fields, including detailed health disclosures, and sign and date the form.

If outstanding policy loans existed against the cash value when the policy lapsed, these loans and their accrued interest may need to be repaid as part of the reinstatement terms. The insurer will provide specific instructions on handling these financial obligations.

Steps in the Reinstatement Process

First, contact the life insurance company or a licensed agent to confirm specific requirements for your policy and obtain any forms.

After obtaining forms and preparing documentation, submit the complete reinstatement package to the insurer. This package includes the completed application form, payment for overdue premiums and accrued interest, and any required medical reports or health questionnaires. Submission can be by mail or online portal.

Upon receipt, the insurer’s underwriting department will review the submitted information. This review assesses updated health details to determine the insured’s current risk profile.

Following review, the insurer will decide on the reinstatement request. The policyholder will be notified of the outcome, which could be approval, denial, or a request for additional information. If approved, the insurer provides written confirmation, often issuing updated policy documents or an endorsement to the existing policy.

What Changes After Reinstatement

Reinstating a life insurance policy adjusts its terms. A new contestability period, usually one to two years, begins from the reinstatement date. During this time, the insurer can investigate and potentially deny a claim if material misrepresentations were made on the reinstatement application.

Similarly, a new suicide clause period, also one to two years, is initiated upon reinstatement. If the insured dies by suicide during this period, the policy may not pay the death benefit; instead, the insurer might only return the premiums paid.

While the original policy issue date remains relevant for factors such as the insured’s age and some long-term policy features, contestability and suicide provisions reset based on the new reinstatement date.

For policies with a cash value component, such as whole life insurance, cash value accumulation resumes from the point of lapse. Any outstanding policy loans not repaid during reinstatement will continue to accrue interest, and their balance will affect the available cash value and death benefit.

Other Options for Lapsed Policies

If reinstating a lapsed policy is not feasible or approved, other options exist for obtaining life insurance coverage. One option is to purchase a new life insurance policy. This involves a fresh application, a new underwriting process, and potentially higher premiums based on current age and health. This choice may be relevant if the individual’s health has significantly declined, making reinstatement difficult or costly.

For policies with accumulated cash value before lapsing, non-forfeiture options might have been available. These options allow policyholders to retain some value from their policy even if they stop paying premiums. Two common non-forfeiture options include extended term insurance and reduced paid-up insurance.

Extended term insurance uses the policy’s cash value to purchase a new term life policy for the original face amount for a limited period. Reduced paid-up insurance uses the cash value to purchase a smaller amount of paid-up whole life insurance, which remains in force for the rest of the insured’s life without further premium payments. These options are typically elected at or before the time of lapse for policies with cash value.