What Does Guarantee Renewable Mean?

What does guarantee renewable mean? This question was posed to Mark Webb, Executive Vice President, Governmental Relations, of Employers Direct Insurance Company. "When buying a long term disability (LTD)...

This question was posed to Mark Webb, Executive Vice President, Governmental Relations, of Employers Direct Insurance Company. "When buying a long term disability (LTD) insurance policy," Webb says, "one of the important considerations is whether you want a noncancelable policy or a guaranteed renewable one. The difference between the two is that a noncancelable policy cannot be canceled unless you fail to pay the premiums when they are due, and that the premiums will not be increased during the life of the policy. A guaranteed renewable LTD policy will not be canceled except for non-payment of premiums, but the annual premium may be increased on renewal. Under a guaranteed renewable LTD policy, premiums will only be increased if they are increased for the entire class of similarly situated policyholders. The difference between the two really boils down to when you want to pay an additional premium."

"A guaranteed renewable LTD insurance policy will cost you more than the group benefits you may or may not be provided through your employment, but it will cost less than a noncancelable policy," Webb explains. "The benefit you receive from that is the certainty that as long as you pay the required premiums the policy isn't going to be canceled by the insurer. A guaranteed nonrenewable policy also prohibits the insurer from unilaterally changing the covered benefits. While your employer may offer a long term disability coverage, and provide for additional benefits should you decide to pay for such coverages, it is also important to remember that group long term disability benefits offered by your employer are probably not portable. In other words, the benefits your employer provides you may be available only as long as you are employed with that employer. This is one of the very important ways that disability insurance differs from health insurance. It is very important to check with your plan administrator and the plan benefits description to learn what benefits your employer is providing before you decide to purchase a long term disability policy."

"In addition to the issue of portability, a group LTD policy provided through your employer is likely cancelable if the insurer cancels the entire group. Cancellation of a group LTD policy offered by your employer will not effect an existing claim, but it will mean that unless the employer replaces the benefit you will have no LTD coverage. That also means that if you were financially contributing to the premiums paid for that group policy, you basically have nothing to show for your payments.

Also, the premiums are not fixed. This could result in your employer offering such benefits only if you are willing to pay part of the premium or your contribution increases after an initial policy period. If that is the case, then you should seriously consider purchasing an individual policy of disability income insurance."

"Individual disability income insurance policies have the advantage of being portable," Webb points out, "since they are not issued as part of an employer or association sponsored group program, and you have the flexibility to secure the benefits you are most likely to need in the event of a catastrophic injury or illness. While a guaranteed renewable policy that pays you up to 80% of your pre-injury wages is likely going to be far more expensive that the group benefits you may have with your employer, it is also certain that the policy will pay benefits when you most need them."

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