Guaranteed Renewable

An insurance policy feature that ensures that the policyholder continues to receive coverage as long as the premiums are paid

Written by CFI Team

What is Guaranteed Renewable?

The term guaranteed renewable is used in the insurance industry and refers to an insurance policy feature that ensures that the policyholder continues to receive coverage as long as the policy’s premiums are paid.

In a guaranteed renewable policy, there is, at times, an option where the policyholder is given a provision to renew coverage on the policy’s anniversary date. The insurer is not allowed to cancel the policy but is allowed to raise the rate on the policy issued.

Typically, most insurance policies are both guaranteed renewable and non-cancellable. Another type of insurance policy is an optionally-renewable policy.

Summary

Guaranteed renewable refers to an insurance policy feature that ensures that the policyholder continues to receive coverage as long as the policy’s premiums are paid.
In a guaranteed renewable policy, there is, at times, an option where the policyholder is given a provision to renew coverage on the policy’s anniversary date.
The three main types of insurance coverage policies are optionally renewable, guaranteed renewable, and non-cancellable.

Types of Insurance Coverage

The three main types of insurance coverage policies are as follows:

1. Optionally Renewable

Optionally renewable policies give the insurer the ability to cancel the policy on the anniversary date or premium due date.

The company can only raise premiums if there is a significant increase in the risk of future claims. Most people use an optionally renewable policy for disability insurance. The policy is also protected in case the insurance company announces a significant rate increase.

Another related concept is a conditionally renewable policy where there is no guarantee that the benefits provided to the policyholder in one year are renewed and provided in the following year. The insurer can choose to change the conditions of the policy with every passing year. A conditionally renewable policy is the least beneficial policy type.

2. Guaranteed Renewable

A guaranteed renewable policy, without the non-cancellable clause, is less comprehensive, and the policyholder can opt to make any changes to its insurance premium schedule and monthly benefits.

3. Non-Cancellable

Non-cancellable policies are also typically guaranteed renewable in nature. Non-cancellable policies ensure that as long as the premium is paid by the date specified, the policy terms or its premium cannot be changed (up until the age of 65 or as decided when purchasing the policy).

Guaranteed Renewable - Coverage Policies

Guaranteed Renewable vs. Non-Cancellable Policies

Guaranteed renewable and non-cancellable policies share a few similarities and differences. The terms during the first three years of both types of policies will remain the same. During this time, the insurance premiums must be paid on time, and the policy provisions cannot be modified by the insurer.

In terms of the differences, for a guaranteed renewable policy, the rates can be changed after the first three years of the policy. The rate change is typically applicable to the entire risk class and not for an individual policy or person. A risk class can be segregated based on factors such as age, gender, or occupation.

For a non-cancellable policy, the policy rate remains the same even after the three years. Policies with a non-cancellable provision are also more expensive than guaranteed renewable, as the policyholder is protected from any rate increase announced by the insurance company.