Colorado Life Producer License Practice Test

What is an advantage of reinstating a lapsed policy instead of applying for a new one?

1. Lower overall premiums

2. The insured's original age is used for premium determination

3. Immediate payout of death benefits

4. Permanent insurability without medical underwriting

The correct answer is: The insured's original age is used for premium determination

One key advantage of reinstating a lapsed policy is that it allows the insured to maintain the original age for premium determination. When a policy is reinstated rather than replaced with a new one, the premium calculations are based on the age at which the policy was initially issued. This can lead to significantly lower premiums compared to a new policy where the insured's current age would be considered, potentially resulting in higher costs. Maintaining the original age is especially beneficial for older insured individuals or those whose health may have declined since the original policy was taken out. This can lead to cost savings and ensures that the insured does not pay more than necessary for coverage due to age-related rate increases. The other options presented do not accurately represent advantages associated with reinstating a lapsed policy. For instance, while immediate payout of death benefits might seem appealing, a reinstated policy still follows the standard policy terms regarding when benefits become payable. Permanent insurability without medical underwriting typically does not apply; reinstatement may still require some evidence of insurability or compliance with specific terms. Overall, reinstating a policy while keeping the original age for premium calculation is a compelling reason to choose this route over applying for a new policy.