Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What does the reinstatement clause in insurance entail?

1. Lower insurance amount post-loss

2. Same coverage amount post-loss as before

3. Increased coverage amount after a loss

4. Claim settlement as a lump sum

The correct answer is: Same coverage amount post-loss as before

The reinstatement clause in insurance ensures that after a loss occurs, the coverage amount remains the same as it was before the loss. This means that policyholders do not lose any coverage despite having made a claim. Instead of a reduced coverage amount, the clause protects the insured by allowing them to maintain the original terms of their policy, which is crucial for ensuring ongoing protection against future risks. This feature becomes particularly important in situations where the insured property might be damaged or destroyed. It allows individuals or businesses to replace the lost or damaged property without facing the disadvantage of lower coverage resulting from a previous claim. Therefore, having this clause in the policy helps maintain financial stability and peace of mind, enabling the insured to carry on with their operations or their lives without the burden of inadequate coverage.