What does the liberalization clause in an insurance contract allow for?

• A. Increased premiums
• B. Broader coverage without a new contract
• C. Reduction in policy limits
• D. Cancellation of existing policies

Answer: (B)

The liberalization clause in an insurance contract allows for broader coverage without the need for a new contract. This clause is designed to benefit policyholders by automatically extending improvements in coverage that the insurer makes to its policies.

For instance, if the insurance company expands the coverage in their policies to include additional features or eliminates certain exclusions, the liberalization clause ensures that existing policyholders will benefit from these enhancements as well, without needing to renegotiate or rewrite their contracts. This promotes fairness and ensures that policyholders stay current with enhancements made by the insurer.

In the context of the other choices, increased premiums and a reduction in policy limits are contrary to the intent of the liberalization clause, which aims to provide advantages to the insured. Cancellation of existing policies does not relate to the clause since the liberalization clause serves to improve and maintain existing coverage rather than terminate it.