Non-Cancellable and Guaranteed Renewable
What Does That Mean to Your DI Policy?
Individual disability insurance can be a difficult financial product to fully understand, as no two policies are the same at any insurance company. If you are shopping for a policy for yourself, you may have seen the term “Non-Cancellable & Guaranteed Renewable” already. Hopefully I can help you understand what that means to you, because if you buy a DI policy it will be one of the following;
1. Non-Cancellable & Guaranteed Renewable
2. Guaranteed Renewable
3. Conditionally Renewable
As you can see from the list above, every single policy from every company offering disability income protection can be classified into one of these three types of “Renewability”. The most comprehensive, and typically the most expensive, is to have a policy that is Non-Cancellable and Guaranteed Renewable. Guaranteed Renewable only policies offer a few less guarantees, and conditionally renewable policies offer the fewest guarantees.
So What Are The Benefits To A Non-Can Policy?
Technically the easiest way to explain it is to say that with a Non-Cancellable and Guaranteed Renewable policy, nothing about your policy is going to change, and as long as you pay the premiums the policy is going to be in-force should you ever need it in the future. The policy benefits are not going to change, the premium is not going to change, and more importantly, the policy will be in-force should you become too sick or hurt to work 20 years from now. If you buy a new disability insurance policy at the age of 32, you will be paying the level premium rate of a 32 year-old every year you keep the policy in-force. The insurance company can’t change the rates on you, and more importantly, can’t drop you for any other reason than failing to pay the premiums.
If you want to buy a disability insurance policy to protect your income, and just have a great policy that will be there in case you need it, it is probably a good idea to have a Non-Cancellable and Guaranteed Renewable policy. With this kind of policy you don’t have to worry about any possible loopholes or worst case scenario changes in the future.
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:
1. By Policy State
2. By Policy Year
3. 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. Personally all you have to do is look at what has happened recently in the long term care business.
All long term care business is Guaranteed Renewable, and a bunch of 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.
Disability insurance carriers have typically not had great claims experience in the states of California and Florida, and more recently in the states of Nevada and Arizona. 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 experience including certain types of physicians and dentists. If you had a GR policy and ten years from now the insurance company deems your occupational class to be 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 the insurance company decides to continue to offer the plan. Companies have retreated from the Group LTD business in the past, and it could happen again. Also your employer could just decide that offering group LTD to it’s employees is just too expensive and 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. Quite simply, a conditionally renewable policy just offers virtually no guarantee that your policy will exist at the time you may need to file a claim.
So What Kind Is The Best For You?
Over the last 17 years I have been a disability insurance specialist, I have found that most people do want to protect their income in the event they should become disabled, and most people do 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 about everything they learned during the purchasing 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 that the majority of people end up buying GR only policies.
Nobody wants to wake up 10-20 years from now and get a notice of a massive rate increase on their disability insurance policy, and with a Non-Can policy you don’t have to worry about that. If you are like most people, and just want to know that you are covered should you become too sick or injured to work, then make sure your personal disability insurance policy is Non-Cancellable and Guaranteed Renewable.