Reinstatement, Suicide, and a Concealed Tobacco Habit
A $750,000 universal life policy was issued in March 2019 to Harold, then 47, at a preferred nontobacco rate. He missed premiums and the policy lapsed in January 2023. In May 2023, after new evidence of insurability and payment of $6,200 in back premiums, the insurer reinstated it. On the reinstatement application Harold answered 'no' to tobacco use, although he had used nicotine pouches daily since 2021. He died in February 2025, and the death certificate lists suicide. His wife, the beneficiary, filed a claim. The policy contains standard two-year suicide and incontestability provisions, a misstatement-of-age clause, and a reinstatement clause. The state where the policy was delivered restarts both the suicide and contestability periods on reinstatement; the state where he died does not restart the suicide period. The insurer has not yet paid or denied the claim.
1. Analyze the claim. Does the insurer pay the $750,000 death benefit, refund premiums, or rescind? Address both states.
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In the delivery state, death in February 2025 is 21 months after the May 2023 reinstatement, inside the restarted two-year suicide period, so the suicide provision limits the insurer's liability to a refund of premiums paid (some policies use the reserve instead). The tobacco misstatement becomes largely academic in that state, because the suicide clause caps recovery regardless of contestability. In the state that does not restart the suicide period, the exclusion expired two years after March 2019, so suicide is no longer a defense and the full death benefit is payable unless the insurer validly rescinds. Rescission requires a material misrepresentation in the reinstatement application, made within the contestable period, which it is. Daily nicotine use would almost certainly have changed his rate class from preferred nontobacco, so materiality is strong. Which state's law applies is itself an issue, usually the state of delivery or where the contract was made, not where he happened to die. The beneficiary should be told the outcome may turn on that choice of law.
2. What if Harold had died in an automobile accident in February 2025 instead of by suicide?
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The suicide clause drops out, so the case becomes a pure contestability question. In the delivery state, the reinstatement restarted the two-year contestable period, and death at 21 months falls inside it, so the insurer can contest the tobacco answer. If the misstatement is material, meaning the insurer would have charged more or declined, the remedy is rescission and return of premiums, not payment of the face amount. In the state that does not restart contestability, the original contestable period expired in 2021 and the tobacco answer is no longer contestable; the misstatement-of-age and similar adjustment clauses do not reach tobacco use, so the full $750,000 is payable. This contrast is exactly what the exam tests: suicide and incontestability are separate clocks, and reinstatement can reset both, one, or neither depending on the policy and state law. Read the reinstatement clause and the state statute before advising anyone.
3. What should the producer have done at reinstatement, and what documentation should exist?
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The producer should have explained that reinstatement is a new underwriting event: evidence of insurability, back premiums with interest, and in many states a fresh suicide and contestability period. That warning belongs in writing, because the client is buying back coverage he had already paid for and needs to know the protections restart. The producer should have asked the tobacco question directly, recorded the answer and the date, and never suggested an answer. He should also have modeled whether reinstatement was better than a new policy at Harold's current age and rating, and if a new policy was recommended, followed replacement rules. The file should contain the reinstatement application, the illustration, the premium receipt, the disclosure of restarted periods, and notes of the conversation. If the producer filled in the tobacco answer without asking, that is a serious problem independent of the claim outcome, and the insurer and state regulator should hear it from him first.