Understanding the Reinstatement Provision
In the world of Accident and Health insurance, the Reinstatement Provision is a mandatory uniform provision that dictates how a policy can be put back into force after it has lapsed due to non-payment of premium. When a policyowner fails to pay their premium by the end of the grace period, the policy terminates. However, the law provides a pathway for the insured to restore their coverage without necessarily having to purchase a brand-new policy.
For students preparing for the complete Accident & Health exam guide, understanding the specific timelines and limitations of reinstatement is critical. The provision is designed to protect both the insurer from adverse selection and the insured from a permanent loss of protection due to a temporary financial oversight.
Key Reinstatement Metrics
The Reinstatement Process and the 45-Day Rule
The process of reinstatement usually begins when the policyowner submits a late premium payment to the insurer or an authorized agent. The insurer has a few options upon receipt of this payment:
- Acceptance without application: If the insurer or agent accepts the premium and does not require a reinstatement application, the policy is reinstated immediately.
- Requirement of an application: If the insurer requires a formal application for reinstatement, they will issue a conditional receipt for the premium.
The most important rule for the insurance exam is the 45-day rule. If the company requires an application, they have 45 days from the date of the application to notify the insured whether the application has been rejected. If the insurer fails to notify the applicant of a rejection within those 45 days, the policy is automatically reinstated on the 45th day.
You can test your knowledge on these specific timelines by visiting the practice Accident & Health questions page.
Coverage Limitations Upon Reinstatement
| Feature | Accidental Injury | Sickness/Illness |
|---|---|---|
| Effective Date | Immediately upon reinstatement | 10 days after reinstatement |
| Waiting Period Purpose | None (accidents are unforeseen) | To prevent adverse selection |
| Premium Application | Applied to unpaid periods | Applied to unpaid periods |
The 10-Day Sickness Probationary Period
A common point of confusion on licensing exams is the difference between accident coverage and sickness coverage following reinstatement. To protect insurance companies from individuals who only reinstate their policy because they have just discovered they are ill, the provision includes a 10-day waiting period for sickness.
This means that while coverage for accidental injuries is effective immediately upon the date of reinstatement, coverage for sickness does not begin until 10 days have passed. If an insured contracts an illness or experiences symptoms within those first 10 days, the insurer is generally not liable for those claims. This "probationary period" is a one-time event following the lapse and does not apply to the policy once the 10 days have elapsed.
Exam Tip: The Incontestability Reset
When a policy is reinstated, a new Incontestability Period (typically two years) may begin, but only regarding the information provided on the reinstatement application. The insurer cannot usually contest information provided on the original application if that original contestable period has already expired.
Premium Handling and Arrears
When a policy is reinstated, the insurer typically applies the payment to the period for which premiums were not paid. However, there is a limit. Most state laws stipulate that the insurer cannot require the payment of back premiums for a period exceeding 60 days. This ensures that the cost of reinstatement does not become an insurmountable barrier for the policyowner.
Furthermore, any premiums accepted in connection with a reinstatement shall be applied to a period for which premiums have not been previously paid, but not to any period more than 60 days prior to the date of reinstatement.