Guaranteed Renewable Vs. Non-Cancellable

What really is the difference between a Guaranteed Renewable Disability Insurance policy and a Noncancelable/Guaranteed Renewable Disability policy? To dissect this question, we first must define each type of policy:

“Noncancelable & Guaranteed Renewable” individual disability insurance policy, often referred to as “Non-Can”, provides the right to continue a policy (normally through as 65) if the client pays the premium on time. The insurance company cannot change the benefit, features or premium of the policy.

“Guaranteed Renewable” individual disability insurance policy, commonly referred to as “GR”, provides the right to continue a policy (normally through age 65) if the client pays the premium on time. Where the insurance company cannot change the benefits or features of the policy, they may change the premium of the policy,

If an insurance company can change the premium rates on a GR policy – why don’t they ? For an insurance company to change the premium rates, it would take the following:

• • They must change the premium for everyone in an entire class of policy owners
  • They must file for new rates with the state and have the state approve the new rates
  • Because the change must be for an entire class of policies, that means they cannot adjust for reasons related to a client’s individual circumstances

  For an insurance company to justify the request of new rates for an entire class of policy owners, at a minimum they would need to:

  • • Have had at least 4-5 years of that exact class of policy for sale to the public providing credible historical claims/pricing experience to review
    • Actuarially be able to prove they are not meeting product pricing expectations
    • Prepare price adjustment filings for each state insurance department that the product is sold

    At that point, the State Insurance Departments will decide to either:

    • • Approve the rate change as applied
      • Decline to allow for the rate change as applied
      • Approve a lesser rate change than was requested

      So, what does this mean? Over the years, disability insurance premium rates have remained steady and predictable, with the occasional challenges in the medical occupation market. Carriers with a GR product for years have either had no rate increases or it being a very rare event. So, while GR rates are not guaranteed like Non-Can policy rates are, it is safe to assume that unless a carrier is experiencing significantly higher loss-ratios than expected, they would not use the time, effort and money to apply for a rate change on an existing block of policies. What’s more likely to happen is that they would make the appropriate changes to pricing when they come out with a new product and leave the current block of policies as is. Ultimately, GR is a great way to show a lower premium option while keeping the strength of a policy’s benefits and features intact.