How About A “Guaranteed Renewable” Policy?
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:
By Policy State
By Policy Year
By Occupational Classification
If an insurance company offering GR policies evaluates their block of business and sees that they are not doing well, they can raise the rates on that business by any of the above means if they obtain approval by the insurance commissioners in each state.
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 Best For You?
Over the last two decades I have been a disability insurance specialist and have found that most people want to protect their family, and want to 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.
Registered Representative of Park Avenue Securities LLC (PAS). Securities products offered through PAS, member FINRA, SIPC. General Agent of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Financial Balance Group, LLC is not an affiliate or subsidiary of PAS or Guardian.