Automatic Reinstatement of Sum Insured
The automatic reinstatement clause ensures that the sum insured is not permanently reduced by a claim payment, but is automatically restored to its full amount from the date of loss in return for an additional premium.
- Clause type
- Extension
- Origin/Market
- International programme
- Favours
- Insured
- Negotiability
- Market standard
Purpose
Absent a specific agreement, a claim payment automatically reduces the sum insured for the remainder of the policy period (an “exhausting” sum insured). Where several loss events occur within one period, this can leave insufficient cover available for later losses. The automatic reinstatement clause addresses this risk by restoring the sum insured to its full original amount from the moment of loss.
Effect and limits
In return for reinstatement, the policyholder pays an additional, usually time-apportioned premium calculated on the amount of the claim payment from the date of loss to the end of the insurance period. Reinstatement operates automatically, with no separate agreement needed at the time of a claim, so the full sum insured is again available for further losses within the same period. The clause relates solely to the property sum insured under the primary policy and should be distinguished from reinstatement in reinsurance, which restores treaty limits rather than the sum insured on individual items.
Negotiation and practice
For properties with elevated frequency risk (for example storm or theft losses), it is worth checking whether the additional premium for automatic reinstatement is proportionate to the benefit, or whether a higher base sum insured is the more economical alternative. In international programmes, it should also be clarified whether the clause applies uniformly across all participating countries or is handled differently at local level.