Weekly Tip: Clarification for Reinstatement Provision

 

Weekly Tips

Clarification for Reinstatement Provision

1/8/2016

The Insurance Compact would like to provide some additional background and clarification regarding the standards applicable to reinstatement provisions which are found in the Individual Term Life Insurance Policy Standards and the Individual Joint Last to Die Survivorship Term Life Policy Standards and the collection of overdue premiums.  

The standards differ depending on when the policy is reinstated as outlined in Section 3 U. (4) of the Term Policy Uniform Standards.  If the policy is reinstated before the expiration of a "level" premium period, the company may require the payment of all overdue premiums.  If the policy is reinstated at an attained age premium and if (a), (b), and (c) under paragraph 4 are all true, then only one month's premium may be required.

During the level term period, the owner is reinstating the death benefit and the issue age premium.  The owner may be required to pay all back premiums as the level premium was determined to prefund future death benefits.

However, during the Annually Renewable Term period when premiums are increasing each year based on the insured's attained age, the premiums paid are not prefunding future death benefits at an issue age rate. If evidence of insurability is required and the policy is being reinstated at an annually increasing ART rate, there is no advantage for the insured to reinstate the policy compared to purchasing a new policy in the market place.

If you have any questions regarding the reinstatement provision or the Insurance Compact, please contact the IIPRC office.