3 Ways of Renewing a Disability Income Insurance Policy

The renewability feature of a disability income policy dictates whether and at what premium rate the owner may renew the policy. This policy feature is important because the choice among the renewability provision involves critical cost-benefit tradeoffs. The three principal renewability provisions include: noncancelable; guaranteed renewable; and conditionally renewable.

Noncancelable – A noncancelable renewability provision gives policy owners the right to renew coverage at the same rate, unusually until age sixty-five. In other words, the policy owners will not see an increase in their policy premiums regardless of whether the insured has or has not made any claims under the policy. In effect, a noncancelable policy offers premiums that are guaranteed, at least to age sixty-five. As one might expect, generally insureds will have to pay higher premiums for a noncancelable policy than for a policy that is not noncancelable. Typically, if one can afford the premiums, the best policy is one that is noncancelable.

Guaranteed renewable – This guaranteed renewable provision is similar to the noncancelable provision with the exception that the insurance company can increase the premium that the insured must pay for the policy. However, this feature is somewhat less adverse than it might at first seem. Insurers can increase premiums, but not on individual policies. Rather, if the insurance company wants to raise the premiums at renewals, it must increase the premiums on all policies that fall within a particular category. Consequently, the insurer cannot pick and choose among those policyowners who had had the worst experience within the class to raise the premiums, so they are only likely to increase premiums if the average claim experience throughout the whole class of insureds is poor. Consequently, prospective insureds may find that a disability income policy with the guaranteed renewable provision may prove to be not just more affordable, but also better overall on a cost-benefit basis.

Conditionally renewable – With the conditionally renewable, the insurance company imposes certain conditions that the policyholder must meet in order to be able to renew the policy. One fairly common requirement is that policyholders must be employed full-time in order to renew coverage. Also, unlike the noncancelable provision, the insurance company may raise rates at renewal dates under this type of plan.

Reproduced with permission. Copyright The National Underwriter Co. Division of ALM

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