Individual disability insurance can be a difficult financial product to fully understand as no two policies are the same at any 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 because if you buy a policy it will be one of the following; 

Non-Cancellable & Guaranteed Renewable
 

Guaranteed Renewable
 

Conditionally Renewable
 

Every single policy from every company offering disability income insurance can be classified into one of 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 fewer guarantees, and conditionally renewable policies offer the fewest guarantees. 

So What Are The Benefits To A Non-Cancellable Policy?

With a Non-Cancellable and Guaranteed Renewable policy, nothing about your policy is going to change as long as you pay the premiums before the benefit period ends at age 65 or 67. The policy benefits are not going to change until the Non-Cancellable period ends at 65/67. 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 pay 32-year-old rates for as long as you keep the policy. The insurance company can not change the rates on you, and more importantly, can not drop you for any other reason than failing to pay the premiums. It is not until after age 65 or 67 when the policy becomes "Conditionally Renewable" that any riders fall off or premiums can change.

If you want to buy a disability insurance policy to protect your income, and 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: 

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 Most Appropriate For You? 

Over the last two decades, I have been a disability insurance specialist and have found that most people want to protect their families and 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.