What is a Guaranteed Renewable Policy?

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. 

Key Takeaways

  • 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.

Understanding Guaranteed Renewable Policies

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.

Non-Cancellable and Guaranteed Renewable Policy

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.

Guaranteed Renewable Policy

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.

Conditionally Renewable Policy

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.