Final answer:
The reinstatement condition for an insurance policy is proof of insurability. This is when insurers require evidence that the individual or property meets their underwriting criteria upon policy lapse. Premium changes are not conditions of reinstatement but are related to pricing adjustments.
Step-by-step explanation:
The question regards a reinstatement condition for an insurance policy. The correct answer is a) proof of insurability. When an insurance policy is lapsed, and the policyholder wants to reinstate it, insurers often require evidence that the individual or property still meets their underwriting criteria.
This could involve a medical examination for life or health insurance or an inspection for property insurance. Premium increases or decreases are related to adjustments in the policy's cost due to various factors but are not specifically conditions for reinstatement. Similarly, changes in the insuring clause pertain to modifications in the policy coverage but are not conditions to reinstate a lapsed policy.
In the context of insurance economics, seeking to maintain a balance between the premiums collected and claims paid out is critical. If insurance companies raise premiums too high, they risk losing low-risk clients, upsetting the balance of the risk pool.
Conversely, setting premiums too low can lead to inadequate funds to cover claims, forcing companies to avoid insuring higher-risk individuals or potentially withdrawing from markets with strict premium regulations, as seen in past examples from New Jersey and Florida.