AUTOMATIC REINSTATEMENT CLAUSE Meaning and
Definition
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The automatic reinstatement clause is a provision commonly found in insurance policies which stipulates that coverage will be automatically restored after a claim has been paid out, without the policyholder having to take any additional action or apply for reinstatement. When a claim is made and paid, the policy's coverage limit is typically reduced by the amount of the claim settlement. However, with an automatic reinstatement clause, the coverage limit is automatically reset to its original value after the claim has been settled, ensuring that the policyholder is still protected against future losses up to the full limit.
This clause is particularly useful in insurance policies that provide coverage for recurring or frequent losses, such as property insurance or liability insurance. By automatically reinstating the coverage limit, the policyholder does not need to worry about notifying the insurer or taking any steps to maintain the adequate level of coverage. This provision provides convenience and peace of mind to the policyholder, as it eliminates the risk of being uninsured or underinsured after a claim.
It is important to note that the automatic reinstatement clause usually comes with certain limitations and conditions, such as a maximum number of reinstatements within a specific time frame. Additionally, the reinstated coverage usually applies only to losses arising from new and unrelated events, rather than the same loss that triggered the initial claim. Policyholders should carefully review their insurance policies to understand the specific terms and conditions related to the automatic reinstatement clause.
