What is Guaranteed Renewable Policy?
A guaranteed renewable policy is an insurance policy feature that obligates the insurer 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.
Premiums can also be raised on an entire class of insured people during the life of a guaranteed renewable policy for health, life or disability insurance.
Understanding Guaranteed Renewable Policy
Most insurers offer both guaranteed renewable policies and non-cancelable policies. If premiums are similar for both a guaranteed and a non-cancelable policy, the non-cancelable policy will offer the double guarantee of re-insurability and locked-in premiums.
There are actually three types of renewability available in insurance policies: non-cancellable and guaranteed renewable, guaranteed renewable, and conditionally renewable.
- A guaranteed renewability policy isn't as secure as a non-cancellable and guaranteed renewable one.
- Out of the three renewability policies, the least favorable to policyholders is a conditionally renewable policy.
- A conditionally renewable policy allows an insurance company to alter the conditions of a policy on an annual basis.
Non-Cancellable and Guaranteed Renewable
Non-Cancellable and guaranteed renewable indicate there will be no changes (unless you want them) to your premium schedule, your monthly benefits or your policy benefits up to age 65 (or another specified age).
A guaranteed renewable policy puts the obligation on the insurance company to honor and continue coverage on an insurance policy if premiums are paid.
This type of policy is notable when it comes to disability insurance. Since many people don't have a guarantee that their income will never go down again, under 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.
Non-cancellable and guaranteed renewable policies typically cost more than guaranteed renewable policies, but not a lot more, and certainly not so much more that the majority of people end up buying guaranteed renewable-only policies.
Non-cancellable and guaranteed renewable policies are better because you'll never wake up 10 or 20 years from now to a situation of an insurance company announcing a massive rate increase. Simply put, if you just want to know that you are covered in the event you can't work anymore, a non-cancellable and guaranteed renewable policy is the way to go.
This type of renewability isn't as good as non-cancellable and guaranteed renewable. While under a non-cancellable and guaranteed renewable policy, the policyholder can choose to make changes to the premium schedule, monthly benefits or policy benefits. Under a simply guaranteed renewable policy, that choice belongs to the insurance company—and, in practice, most insurance companies will take advantage of this option if it can decrease their liability in some way.
The least beneficial to the policyholder of the three types of renewability, a conditionally renewable policy offers virtually no actual guarantee of renewability. The insurance company can change the conditions of your policy every year if they choose.