Reinstating a Lapsed Life Insurance Policy: What You Need to Know

What Causes a Life Insurance Policy to Lapse?

A life insurance policy can lapse for several reasons, most commonly when premiums are not paid on time, the policyholder misses a required payment, or the insurer deems the policy no longer eligible for coverage. In some cases, a lapse occurs because the policyholder has reached the policy's maturity date and the policy has not been renewed.

Can a Lapsed Policy Be Reinstated?

Yes, many life insurance policies can be reinstated, but the process depends on the type of policy and how long it has been inactive. Term and whole life policies are typically easier to reinstate than universal or variable policies, which may require additional underwriting.

Reinstatement Timeframes

• Short-term lapse (less than 30 days): Usually automatically reinstated if the missed payment is made.
• Longer lapse (30 days to 1 year): Requires a reinstatement application and may involve a medical exam.
• Lapse over 1 year: Reinstatement is often not possible; a new policy is required.

Steps to Reinstating Your Policy

1. Contact Your Insurer: Call the customer service number on your policy documents to confirm the lapse status and ask about reinstatement options.

2. Gather Documentation: You may need proof of income, health status, and the original policy information.

3. Submit a Reinstatement Application: Fill out the insurer's reinstatement form, which may request additional medical information or a new underwriting assessment.

4. Pay Outstanding Premiums: Pay any overdue premiums, plus a reinstatement fee if required. Some insurers offer a grace period for the first missed payment.

5. Await Approval: The insurer reviews the application and determines whether the policy can be reinstated under the same terms or with revised conditions.

Costs and Premium Adjustments

Reinstatement often comes with higher premiums. Insurers may increase rates to reflect the increased risk associated with a lapsed policy, especially if a medical exam indicates new health concerns. The insurer may also impose a reinstatement fee, which can range from $25 to $200 depending on the policy.

Reinstatement Fee Comparison

Impact on Coverage and Beneficiaries

Once reinstated, the policy's death benefit remains the same, but the policy's terms may change. Some insurers may offer a reduced benefit or require additional riders. Beneficiaries should be informed of any changes to ensure they understand the updated coverage.

When Reinstatement Is Not an Option

If a policy has been lapsed for more than a year, most insurers will not allow reinstatement. In such cases, the policyholder must purchase a new policy. This new policy may have higher premiums due to age and health changes since the original policy was issued.

Preventing Future Lapses

To avoid future lapses, consider setting up automatic payments, reviewing your policy annually, and keeping your contact information up to date. If you anticipate financial hardship, reach out to your insurer early; some offer temporary premium payment plans or reduced coverage options.