What is the difference between guaranteed renewable and non cancellable?

To a consumer, this is always confusing. The best policies are Non-Cancellable & Guaranteed Renewable, the second most comprehensive type of policy is a “Guaranteed Renewable” only policy. 

With a GR (Guaranteed Renewable) policy, the company guarantees your ability to renew the policy every year as long as you pay the premiums, but there are some stipulations. The reason these policies typically cost less is that an insurance company can change the rates on you in any one of three different fashions: 

That should beg the obvious question, “Has anybody raised rates in the past on GR business?” The answer to that question is yes. Disability insurance carriers offering GR policies have raised rates in the past. All you have to do is look at what has happened recently in the long-term care business (LTC). 

All long-term care business is Guaranteed Renewable, many companies in the last decade have raised rates on their LTC business. Like I said before, there is a reason companies can charge less for GR policies, if they need to, they can always raise the rates in the future.

Likely Areas a Guaranteed Renewable Policy Could Increase Rates

Disability insurance carriers have typically not had great experiences with claims in the states of California, Arizona, Nevada and Florida. Consumers in these states should be even more inclined to buy a Non-Cancellable policy so that their policy rates are not increased later in life.

Historically there have also been some occupations that have not had the best claims experiences, such as certain types of physicians and dentists. If you have a GR policy and ten years from now the insurance company deems your occupational class to have poor claims experience, you could possibly get a large rate increase as well. 

So What Is A Conditionally Renewable Policy?

Typically this is the type of renewability found in Group LTD or Association Disability Plans. If you have a Group LTD plan, it renews so long as your company decides to keep the insurance plan, or if the insurance company decides to continue to offer it. Companies have retreated from the Group LTD business in the past, and it could happen again. Also, your employer could decide that offering group LTD to its employees is too expensive and may stop offering the benefit. 

While you may not think this is a big deal, it would be a horrible scenario if at the age of 55 you just lost your LTD plan and because of your health history could no longer qualify to purchase your own disability insurance policy. Simply put, a conditionally renewable policy does not offer a guarantee that your policy will exist when you may need to file a claim. 

So What Kind Is The Most Appropriate For You? 

Over the last two decades, I have been a disability insurance specialist and have found that most people want to protect their families and have a general understanding of how the policy works. I have also found that ten seconds after they put the policy in force they forget most of what they learned during the process. So, the best thing I can do for clients is to try to offer them a policy that pays the most benefits in the most possible claims scenarios. Yes, it does cost a bit more for a Non-Cancellable and Guaranteed Renewable policy, but not a lot more, and certainly not so much more than the majority of people end up buying GR-only policies.

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

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Posted on Mar 9, 2022

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Understanding Non-Cancellable Insurance Policies

Non-cancellable policies provide the client with the comfort of knowing they will not need to requalify for the insurance plan in the future if their health were to decline. Most non-cancellable insurance plans go until age 65, where they are then re-evaluated; however, it is not always the case. Some plans extend longer or are re-evaluated sooner, depending on the specific plan being purchased. A non-cancelable insurance policy also makes it easier to plan out future expenses, as the premiums will not change unexpectable.

For example, if a 31-year-old woman purchases health insurance, they will receive coverage for the same price until they reach the age of 65 – unless otherwise agreed upon. Even if the customer were to develop a chronic health condition when they turn 40, they would still pay and receive the same benefit as their 31-year-old self.

What is a Conditionally Renewable Policy?

A conditionally renewable policy is that which allows the renewal of health, disability, or life insurance if certain specified conditions are met. The conditions can vary drastically and are reconsidered periodically – usually before a premium payment, which can be monthly, quarterly, or yearly.

The policy offers many more benefits to the seller. It decreases the risk associated with a non-cancellable policy and allows for increased premiums if an individual’s health risk were to increase. Conditionally renewable systems usually include age, type of employment, health conditions, etc. The policies also typically come with lower premiums than non-cancellable policies. In addition, the insurer is allowed to increase premiums or cancel the plan in the future if the individual’s risk level were to increase.

Advantages of a Non-Cancellable Insurance Policy

Non-cancellable insurance policies can positively benefit the risk-averse buyer. A healthy consumer may want the safety of knowing his policy premiums will not have unexpected spikes in the future. Again, it does not protect against age premium changes; however, these can be perfectly predicted, therefore not adding to the risk for a risk-averse consumer.

Adverse selection occurs when the buyer and seller have different information, ultimately changing their actions and buying habits. A non-cancellable insurance policy reduces the chances of consumers acting on such information. For example, if a customer realized they might have increased health risks in their near future, they might increase their coverage to receive a more generous benefit.

Such actionable information would be unavailable to the actuaries or underwriters and, therefore, would create an unexpected loss for the company. Alternatively, if insurers possess more information, such as regulations restricting premiums from changing, then they may only offer insurance to low-risk individuals.

The above practice is also known as cream-skimming or the act of choosing specific clients over others to maximize profits or reputation, ultimately resulting in adverse effects on society. It is extremely common within insurance companies, as certain demographics and customer segments provide significantly higher returns and lower risk. However, cream-skimming is widely considered immoral, and in many places in the world, there are regulations in place to prevent this business practice.

Non-Cancellable Policies vs. Guaranteed Renewable Policies

A non-cancellable insurance policy is often used interchangeably with guaranteed renewable policy or guaranteed renewable insurance. There is, however, a small difference.

Guaranteed renewable premiums can increase over time if the change in premiums affects many policyholders. It can put the customer at risk when they are considered a more significant liability, and they can potentially lose their coverage when they need it most. That is why it is often recommended to get coverage that is both non-cancellable and guaranteed renewable.

Related Readings

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A guaranteed renewable policy is an insurance policy feature that ensures that an insurer is obligated to continue coverage as long as premiums are paid on the policy. While re-insurability is guaranteed, premiums can rise based on the filing of a claim, injury, or other factors that could increase the risk of future claims. 

• A guaranteed renewable policy is an insurance policy feature that ensures that the insurer is obligated to continue coverage as long as premiums are paid on the policy.
• With a guaranteed renewable policy, re-insurability is guaranteed but premiums can rise based on the filing of a claim, injury, or other factors that could increase the risk of future claims. 
• Most insurers offer both guaranteed renewable policies and non-cancellable policies; the non-cancellable policy will offer the double guarantee of re-insurability and locked-in premiums.

Most insurers offer both guaranteed renewable policies and non-cancellable policies. If premiums are similar for both a guaranteed and a non-cancellable policy, the non-cancellable policy is a better deal for the consumer because it offers the double guarantee of re-insurability and locked-in premiums.

In total, insurers typically offer three types of policies: non-cancellable plus guaranteed renewable, guaranteed renewable, and conditionally renewable.

A non-cancellable and guaranteed renewable policy guarantees that there will be no changes to your premium schedule, your monthly benefits or your policy benefits up to age 65 (or another specified age) unless you request them. The exception to this is if you file a claim, experience an injury, or if there is some other factor that the insurance company believes increases the risk of future claims. In this case, the insurance company can raise your premiums.

This type of policy is often elected when purchasing disability insurance. Most people cannot know for certain that their income will never go down in the future. If you purchase a non-cancellable and guaranteed renewable policy—even if your income goes down later in life and you are totally disabled—the company will pay you the total disability benefit you originally placed in-force.

Even though there is not a drastic price difference, non-cancellable and guaranteed renewable policies typically cost more than guaranteed renewable policies. Non-cancellable and guaranteed renewable policies are generally preferred because the policyholder will not be impacted if an insurance company announces a massive rate increase in the future.

This insurance policy is not as comprehensive as a non-cancellable and guaranteed renewable policy. With a non-cancellable and guaranteed renewable policy, the policyholder can choose to make changes to their premium schedule, monthly benefits, or policy benefits.

With a guaranteed renewable policy, that choice belongs to the insurance company and most insurance companies will try to decrease their liability if they can.

A conditionally renewable policy offers the least benefits to the policyholder compared to the other two policies—non-cancellable and guaranteed renewable, and guaranteed renewable. A conditionally renewable policy offers no guarantee that your same benefits will be renewed every year; the insurance company can change the conditions of your policy every year if they choose to.