What is a guaranteed renewable policy?

“Noncancelable & Guaranteed Renewable” individual disability insurance policy, often referred to as “Non-Can”, provides the right to continue a policy (normally through as 65) if the client pays the premium on time.  The insurance company cannot change the benefit, features or premium of the policy.

“Guaranteed Renewable” individual disability insurance policy, commonly referred to as “GR”, provides the right to continue a policy (normally through age 65) if the client pays the premium on time.  Where the insurance company cannot change the benefits or features of the policy, they may change the premium of the policy,

If an insurance company can change the premium rates on a GR policy – why don’t they?  For an insurance company to change the premium rates, it would take the following:

• • They must change the premium for everyone in an entire class of policy owners
  • They must file for new rates with the state and have the state approve the new rates
  • Because the change must be for an entire class of policies, that means they cannot adjust for reasons related to a client’s individual circumstances

For an insurance company to justify the request of new rates for an entire class of policy owners, at a minimum they would need to:

• • Have had at least 4-5 years of that exact class of policy for sale to the public providing credible historical claims/pricing experience to review
  • Actuarially be able to prove they are not meeting product pricing expectations
  • Prepare price adjustment filings for each state insurance department that the product is sold 

At that point, the State Insurance Departments will decide to either:

• • Approve the rate change as applied
  • Decline to allow for the rate change as applied
  • Approve a lesser rate change than was requested

So, what does this mean? Over the years, disability insurance premium rates have remained steady and predictable, with the occasional challenges in the medical occupation market. Carriers with a GR product for years have either had no rate increases or it being a very rare event.  So, while GR rates are not guaranteed like Non-Can policy rates are, it is safe to assume that unless a carrier is experiencing significantly higher loss-ratios than expected, they would not use the time, effort and money to apply for a rate change on an existing block of policies.  What’s more likely to happen is that they would make the appropriate changes to pricing when they come out with a new product and leave the current block of policies as is.  Ultimately, GR is a great way to show a lower premium option while keeping the strength of a policy’s benefits and features intact.

A guaranteed renewable disability insurance policy offers the added protection of knowing that as long as you keep paying your premiums on time, your policy can’t be canceled by the insurance company.

Table of Contents

• What is a Guaranteed Renewable Disability Insurance Policy?
• Who Benefits From Guaranteed Renewable Disability Insurance?
• How Much Does Guaranteed Renewable Disability Insurance Cost?
• What is the Difference Between Guaranteed Renewable Insurance and Non-Cancellable Insurance?
• What is a Conditionally Renewable Disability Insurance Policy?
• Where Can You Get a Guaranteed Renewable Disability Insurance Policy?

What is a Guaranteed Renewable Disability Insurance Policy?

A guaranteed renewable disability policy is a disability policy that cannot be canceled by the insurance company as long as the premium payments are kept up to date. Unlike a non-cancelable policy, however, a guaranteed renewable policy doesn’t have premium rates that are guaranteed to remain fixed forever.

At renewal time, the insurance company can raise the premiums on a guaranteed renewable policy, but only if the rate of increase is the same across the board for all policies of the same type and in the same risk class. In other words, an insurer can’t single out your policy for a rate increase.

Who Benefits From Guaranteed Renewable Disability Insurance?

If you rely on your income to support your family and ensure your bills are paid every month, you need a disability insurance policy to protect you in case an accident, illness, or injury prevents you from working and earning a paycheck. A guaranteed renewable policy offers an added layer of protection in that it can never be canceled by the insurance company as long as you pay your premiums. For instance, if you develop a medical condition that puts you in a higher risk class, the insurance company must continue providing coverage.

How Much Does Guaranteed Renewable Disability Insurance Cost?

Guaranteed renewable disability insurance typically costs between 1% and 3% of the income being insured. In other words, if you make $100,000 a year and want disability coverage on your full income, you’ll likely pay between $1,000 and $3,000 per year for a policy.

What determines whether your premiums are closer to the 1% or the 3% end of the range? Your age, your current health, and most importantly, the level of coverage you elect are determinants considered by the insurance company. Disability insurance policies can cover as low as 50% and as high as 80% of your annual income. Higher coverage amounts correspond to higher premiums.

What is the Difference Between Guaranteed Renewable Insurance and Non-Cancellable Insurance?

A guaranteed renewable insurance policy can’t ever be canceled as long as the premiums are paid, but the premiums can change. A non-cancellable policy is not only guaranteed to remain in force, but it also has guaranteed fixed premiums. Even if the health of the insured or the market changes, the premiums on a non-cancellable policy will never increase as long as they’re paid on time.

What is a Conditionally Renewable Disability Insurance Policy?

A conditionally renewable disability insurance policy is one that the insurance company has the option to cancel at renewal time under certain conditions. The insurance company might, for instance, require you to undergo a physical exam at renewal time to determine if there have been any significant changes in your health. If your health is worse than it was when you took out the policy, and the insurance company feels you now present too great of a risk, they might cancel your policy.

Where Can You Get a Guaranteed Renewable Disability Insurance Policy?

You can get a guaranteed renewable disability insurance policy from an insurance agent or broker, either locally or online. Make sure you read and understand the terms of any policy you’re considering before you commit to it, as subtle differences between policies can have a big impact on what’s covered when you file a claim.