The Advantage Of Reinstating An Original Life Policy Is

The Advantages of Reinstatement of a Lapsed Life Insurance Policy

Life insurance policies provide a crucial financial safety net for families, offering a lump sum payment upon the policyholder's death. However, life's unpredictable events can sometimes lead to policy lapses due to missed payments. Fortunately, many insurance companies offer the option of reinstatement, allowing policyholders to revive their lapsed policies under specific conditions. This article delves into the significant advantages of reinstating a lapsed life insurance policy, highlighting the financial and emotional benefits it offers.

Why Policies Lapse: Understanding the Circumstances

Before exploring the advantages of reinstatement, it's essential to understand why policies lapse in the first place. Several factors can contribute to policy lapse:

• Financial Hardship: Unexpected job loss, medical emergencies, or significant unforeseen expenses can make premium payments challenging, leading to policy lapse.
• Overlooked Payments: In the chaos of daily life, premiums can sometimes be overlooked, resulting in unintentional lapse.
• Lack of Awareness: Some policyholders may not fully grasp the importance of maintaining their life insurance coverage, leading to a lapse.
• Changes in Life Circumstances: Significant life changes like divorce, retirement, or the death of a spouse can impact the need for life insurance and may result in a policy being overlooked or terminated.

Regardless of the reason for lapse, the option of reinstatement often provides a valuable lifeline.

The Significant Advantages of Reinstatement

Reinstatement offers numerous advantages over letting a lapsed policy lapse permanently or buying a new policy. Let's examine these benefits in detail:

1. Reinstating Original Policy Premiums & Coverage

One of the most compelling advantages is the ability to reinstate your original policy at the original premium rate. Buying a new policy, particularly as you age, will likely come with significantly higher premiums due to increased risk. Reinstatement avoids this substantial cost increase. You secure the same coverage at the rate established when you initially purchased the policy. This is a huge financial saving that shouldn't be underestimated.

2. Maintaining Existing Cash Value (if applicable)

If your policy has a cash value component, such as a whole life or universal life policy, reinstatement preserves this accumulated value. This built-up cash value can be utilized for various financial needs, such as loans, withdrawals, or even to pay future premiums. Losing this value by not reinstating the policy would represent a substantial financial loss.

3. Avoiding the Medical Underwriting Process

Applying for a new life insurance policy, especially as you get older, frequently necessitates undergoing a comprehensive medical examination. This can involve blood tests, extensive questionnaires, and potential additional medical evaluations depending on your health status. Reinstatement often bypasses this stringent process, especially if the lapse hasn't been too extensive. Avoiding this process saves time, money, and potentially significant stress.

4. Preserving Policy Benefits & Riders

Many life insurance policies include additional benefits, known as riders. These riders offer supplementary coverage for specific situations, such as accidental death benefits, long-term care coverage, or critical illness benefits. Reinstatement preserves these valuable riders, ensuring you maintain the comprehensive coverage you initially selected. Acquiring these riders again on a new policy would often mean additional costs.

5. Maintaining Your Policy's History & Stability

A reinstated policy maintains its original issue date. This is particularly important for long-term policies, impacting factors like dividend accrual (for participating policies) and potential policy benefits that depend on policy duration. A new policy starts its history afresh, potentially delaying the accrual of these benefits. The continuity provided by reinstatement ensures a consistent and established policy history.

6. Peace of Mind and Financial Security

Beyond the financial advantages, reinstating a lapsed policy offers invaluable peace of mind. Knowing that your family is protected by a life insurance policy provides a sense of security and reduces financial stress. This security is even more important given the potential unpredictability of future health concerns or financial difficulties.

The Reinstatement Process: Key Considerations

The reinstatement process varies slightly among insurance companies, but it generally involves the following steps:

• Contacting the Insurance Company: The first step is to reach out to your insurance company and inquire about the reinstatement process. They will provide specific instructions and requirements.
• Submitting Proof of Insurability: You will be asked to provide evidence of your current health status, which might include medical examinations or questionnaires. The extent of this process depends on the length of the lapse and the company's policies.
• Paying Back Dues: You will typically need to pay all outstanding premiums, along with any accrued interest or other fees related to the lapse.
• Completing the Reinstatement Application: A formal application must be completed and submitted to the insurance company.
• Review and Approval: The insurance company will review your application and supporting documents. Once approved, your policy will be reinstated, and your coverage will be restored.

It's crucial to act quickly if you intend to reinstate a lapsed policy. The longer the lapse period, the more challenging it becomes to reinstate. Some companies have specific time limits, and the likelihood of approval may decrease over time.

Comparing Reinstatement to Buying a New Policy

When considering whether to reinstate a lapsed policy or buy a new one, carefully weigh the advantages outlined above. Here's a direct comparison:

Conclusion: The Value of Reinstatement

Reinstatement of a lapsed life insurance policy offers significant financial and emotional advantages. It provides a cost-effective way to restore vital coverage, preserve accumulated cash value (if applicable), avoid extensive medical underwriting, and maintain the benefits of your original policy. The peace of mind that comes with securing your family's financial future makes reinstatement a highly worthwhile endeavor. However, it's important to understand the process and act promptly to maximize your chances of successful reinstatement. Contact your insurance provider immediately if you are considering reinstating a lapsed policy. Don't let a lapse jeopardize your family's financial security; explore the valuable opportunity of reinstatement.