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Noncancelable and Guaranteed Renewable Policies

When you buy an individual disability income insurance policy, pay attention to whether the contract is noncancelable and guaranteed renewable, or only guaranteed renewable. You'll find this information in the Type of Contract section of the policy.

Noncancelable and guaranteed renewable means that the policy can't be canceled and the contract provisions can't be changed without your consent, and the premium can't be raised for the life of the policy as long as you continue to pay your premiums. Guaranteed renewable means that the policy can't be canceled and the contract provisions can't be changed without your consent as long as you pay your premiums, but the premium can be raised.

Which type of contract is better?

A noncancelable and guaranteed renewable contract is preferable to a guaranteed renewable only contract. However, because insurance companies do not have the option of raising premiums if they find the policies have become unprofitable, they are offered only to low-risk occupational groups at a high premium.

If you're offered only a guaranteed renewable policy, don't despair. It's not easy for the insurance company to raise your premium. The company can't do it on an individual basis, and it must have the permission of your state's insurance department, which will only approve the increase if warranted by adverse claims experience. The change would apply to all individuals in the same insurance classification.

The best policies will be both noncancelable and guaranteed renewable.