What is a Reinstatement Option?

As Peter has already put it succinctly in his video, a reinstatement option is pretty straight forward; it is an additional extra for a Joint Life Insurance policy. If one person dies on the policy, the policy would normally pay out to the surviving policy holder; however this might not always be beneficial to the by the surviving policy holder. As the policy pays out on the first death, it also ends said policy, leaving the surviving partner unprotected and having to set up a completely new life insurance policy, the reinstatement option allows the existing policy holder to carry on subject to a new application and medical underwriting being authorised.

The Reinstatement Option: How it Works - When it comes to the insurance companies, all their reinstatement option guidelines and conditions will vary and differ quite widely, what’s used here as examples are the standard/average conditions that you can expect to be offered in regard to a reinstatement option. So let’s begin with what happens if you wish to continue the policy; the cover will only last for the remainder of the original joint life policy.

So if you took out a 25 year joint policy and you have 17 years remaining when one of the lives insured dies, you can only convert the policy to cover you for those 17 years, if you wanted to revert to 25 years that would mean establishing a brand new policy, negating the advantage and the point of the reinstatement option. If the reinstatement option is to be activated past the insurers’ minimum term (i.e. 8 years left on the joint policy and the insurers minimum policy term is 10 years) then the insurer will not allow the reinstatement option to be activated. All clauses and conditions will also remain the same in the reinstated policy; they cannot be changed by the policy holder.

To trigger the reinstatement option, it must be optioned within three months of one of the policy holders deaths and during the time it is being processed, you will not be covered by the policy, in other words if you’re extremely unlucky and something untoward happens in those three months, whatever the policy life insurance/critical illness etc, it will not cover the events of this period. When it comes to converting the policy from a joint to single policy, the insurer will send an application to complete that will include a request for new medical evidence and if they are concerned by the information on the application or your present medical conditions, they can change the terms and conditions, even the premiums on your joint life policy, and most likely not for the better. Under these circumstances they will explain why they have amended the policy and what is concerning them.

Unless you have more than two people on the joint policy (it’s possible to have a maximum of four people as that’s the maximum number of people who can be on a mortgage) you cannot take another joint life policy out and add someone new, it can only be renewed to a single life insurance policy for the surviving partner.

What Other Options do I Have? - While a joint life insurance policy is suitable for married couples and business partners, it might not always be the best option. As is true with everything, no two personal circumstances are the same; a joint policy it is cheaper than two individual policies, but some critics would argue the expense of two different policies at the same time is negligible, it would be more economic to have two separate polices as the payout would be larger than on a joint policy, it’s a question of affordability regarding the premiums at this point.

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