Final answer:
A lapsed life insurance policy can be reinstated if it has not been more than three years since the lapse, if all back premiums are paid, and if there is proof of insurability. These requirements align with the insurance principle that payments must cover claims, operational costs, and profits.
Step-by-step explanation:
If a life insurance policy lapses, it can be reinstated if all of the following conditions are met: a) Not more than three (3) years have elapsed since the policy lapsed, b) Back premiums have been paid up, and c) Proof of insurability is provided by the policyholder. Meeting these conditions helps ensure that the policyholder remains an acceptable risk to the insurer and that the policy can continue to be viable within the insurer's risk portfolio.
The concept behind these requirements is rooted in the fundamental law of insurance, which dictates that the average person's payments into insurance over time must be sufficient to cover the average person's claims, the costs of running the insurance company, and provide some room for the company's profits. In fact, actuarially fair premiums are determined based on these principles, and they change if the risk profile of the insured group changes, such as when information about family cancer histories is unknown.