Prudential Insurance Co. of America is informing customers with lapsed policies of the company's planned initial public offering, saying that if they reactivate their policies they may be eligible for compensation when the company goes public. Policies "lapse" when customers don't pay their premiums.

Notices are going to 1.3 million customers holding lapsed life, health, and annuity policies, alerting them that the company is "currently considering" demutualization, which is the process of converting ownership from policyholders to stockholders. While Prudential has not filed a formal demutualization plan, it has notified the New Jersey Department of Banking and Insurance of its intent to go public.

Robert DeFillippo, a Prudential spokesperson, says the company is required by the state to inform customers of its plans so they have a chance to reinstate their policies and take part in the IPO compensation process. He says that while no formal announcement of a demutualization has been made, he expects that Prudential's Board of Directors will adopt an official demutualization plan by March. That plan would have to be approved by Prudential policyholders and the New Jersey banking and insurance department before any IPO can happen.

To reinstate policies, customers are required to make all premium payments past due, pay interest and other fees, and meet insurability requirements, which may require a health questionnaire or medical exam. When a policy lapses, you generally have five or six years to reinstate it, although the deadline varies by policy.

In order for these customers to receive compensation in the form of stock, cash, or policy enhancements from the company's IPO, they must reinstate their policies by the date the Prudential Board of Directors adopts a demutualization plan, probably sometime before March.

Prudential is also opening the door to those whose reinstatement period has expired. If your reinstatement period expired before Sept. 28, 1998, you have 60 days upon receipt of the notice to reinstate your policy.

Prudential adds caution in its letter to customers, saying that they should not make a decision to pay their insurance bills simply to get in on the IPO, because it's anyone's guess how much you might make in the end. "The amount of that distribution cannot be estimated for you or anyone at this time, nor is it even certain that demutualization will take place at all," the letter reads. "Therefore, you should consider reinstating a policy only if reinstatement is a cost-effective solution for your insurance needs."

Prudential is one of four major life insurers who are planning to join the ranks of Wall Street. The others are John Hancock, MetLife, and Sun Life, all of which expect to have IPOs next year.