Colorado Life Producer License Practice Test

Upon reinstatement of a policy, is the policy owner required to pay overdue premiums?

1. Yes

2. No

3. Only if the policy lapsed

4. Depends on the company

The correct answer is: Yes

When a policy is reinstated, the policy owner is generally required to pay any overdue premiums that had accrued before the policy lapsed. This requirement is rooted in the principles of insurance contracts, which mandate that premiums must be paid in order to maintain coverage. If the policy had lapsed, the insurer needs to ensure that all outstanding obligations are settled before restoring the policy to an active status. Reinstatement typically involves a review of the original underwriting conditions, and paying overdue premiums is necessary to bring the account back to good standing. This is important for both the policyholder and the insurer, as it ensures that the insurer receives the premiums due and that the policyholder retains their benefits. In the context of the other options: Not requiring overdue premiums could undermine the insurer's financial stability and the contractual nature of the agreement. Stipulating “only if the policy lapsed” could create confusion regarding policies reinstated due to other circumstances. Saying “depends on the company” introduces uncertainty that contradicts standard practices in life insurance policies. Thus, confirming that overdue premiums are required for reinstatement aligns with industry norms and ensures clarity for both the insurer and the insured.