Reinstating a lapsed life insurance policy

Yes, most lapsed life insurance policies can be reinstated, usually within a window written into the contract. Many policies allow three years after the missed premium, some allow five, and you generally have to pay the overdue premiums with interest and show the insurer you are still insurable. The sooner you ask, the easier it is: reinstatement inside the first few weeks after the grace period often needs only a payment and a short statement of health.

What reinstatement does

A reinstatement puts the original policy back in force as if it had never lapsed. You keep the original issue date, the premium that was set when you were younger and healthier, and, for permanent insurance, the cash value schedule and any guarantees in the contract. That is the main reason to try it before shopping for new coverage.

Reinstatement is different from a lapse that has been replaced by a nonforfeiture benefit. When a whole life policy with cash value lapses, the insurer often converts it automatically to reduced paid-up insurance or extended term insurance. If that happened, your policy may still be alive in a smaller form. See nonforfeiture options: reduced paid-up and extended term and check before assuming the coverage is gone.

The usual rules

Rules come from your contract and from state law, so read the reinstatement provision in your policy. Typical features:

• Time limit. Commonly up to three years after the due date of the unpaid premium, according to state regulators such as the Florida Department of Financial Services, and New York Insurance Law §3203 requires a reinstatement provision allowing three years after default. Some contracts, especially older or term policies, run longer, up to five years.
• Evidence of insurability. The insurer can ask for a reinstatement application, health questions and sometimes medical records or an exam. Reinstating soon after the lapse often means a short form. After a year or more, expect fuller underwriting. See evidence of insurability.
• Back premiums with interest. You pay every missed premium, plus interest at a rate the contract states. Some contracts also let you pay only enough to cover the cost of insurance during the gap, which can be cheaper.
• Loans. If the policy had a policy loan outstanding, you usually must repay it or have it reinstated with interest.
• No cash surrender. If you took the cash surrender value, the policy ended and generally cannot be reinstated.
• Restarted clocks. The incontestability clause may apply again to statements in your reinstatement application, typically for two years. A material misstatement about your health could allow a later claim denial, so answer accurately.

A hypothetical example

Say a 45-year-old stopped paying a $150 monthly premium on a 20-year term policy and the policy lapsed after the grace period. Six months later, the owner wants it back. These figures are invented to show the arithmetic, not any company's terms.

If the owner has since been diagnosed with a serious condition, reinstatement is still evaluated against current health, but it may be worth far more than a new policy, which would be priced on today's age and condition, or declined. If health is unchanged, compare the reinstatement cost with a new term quote. At 45 versus 44 the difference is small, but a policy bought years earlier can be much cheaper.

Steps to reinstate

1. Call or write the insurer or agent now. Ask for the reinstatement date limit, the amount due and the forms. Do this before health changes if you can.
2. Check what the policy became. Ask whether it is lapsed, in extended term or reduced paid-up status.
3. Get the cost in writing. Ask for back premiums, interest, any loan balance and whether the next premium is due at the same time.
4. Complete the application honestly. Include any treatment since the lapse.
5. Pay only when told to, and keep the receipt. Coverage resumes when the insurer approves, not when you mail the check, unless the form says otherwise. Ask about a conditional receipt.
6. Fix the cause. Set up automatic drafts, add a premium notice designee, or switch to an annual payment so it does not happen again. See life insurance grace periods and lapses and paying life insurance monthly vs annually.

When a new policy is better

Reinstatement is not always the right call. A new policy may be better if your health has improved a lot (for example, you quit smoking and now qualify for a better rate class), if the old policy was expensive or poorly suited, or if the reinstatement window has closed. If you are replacing coverage, do not cancel anything until the new policy is approved and delivered; see replacing a life insurance policy: when it makes sense. A new policy also restarts the suicide and contestability periods. If you are not insurable now, reinstatement may be your only route to coverage.

Universal life and no-lapse guarantees

Universal life policies often lapse because the cash value could no longer pay monthly charges. Reinstatement may require a large catch-up payment, and the insurer may also require a payment that keeps the policy from lapsing again right away. Some no-lapse guarantees are lost after a lapse and cannot be restored. Ask for a current illustration before paying. See why universal life policies lapse, and how to prevent it.

Key takeaways

• Most lapsed policies can be reinstated within a window set by the contract, commonly three years and sometimes five.
• Expect to pay missed premiums with interest and to answer health questions; waiting makes both harder.
• Reinstatement keeps your original issue age and rate, which is its main advantage over a new policy.
• Check whether a nonforfeiture option kept part of your coverage alive before assuming it is gone.
• Compare the cost against a new quote if your health has improved, and never cancel old coverage until the new coverage is in force.