Renewability Provisions in Health Insurance

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

Health insurance and disability policies have different renewability options. In this lesson, you will learn about renewability provisions in these policies.

What Are Renewability Provisions?

Let's meet Janice who would like to purchase health and disability insurance. She met with her insurance agent who provided her with information, but she still has questions about the renewability provisions in these policies. Let's see if we can help Janice with these questions.

Renewability provisions in health and disability insurance specify whether the policyholder or the company can terminate the policy, whether or not premiums or the cost of the policy will change, and whether the policyholder needs to provide updated medical information to the insurance company.

The most common renewability provisions are:

  • Cancelable
  • Non-cancelable
  • Optionally renewable
  • Conditionally renewable
  • Guaranteed renewable

Let's look at each one in more detail.

Cancelable Provision

A cancelable provision in a health or disability insurance policy is one in which the insurance company can cancel the policy at any time. The insurance company must provide the policyholder with written notice that it intends to cancel the policy and it must return any unused premium to the policyholder. This type of policy is not very common, as the provision doesn't provide the policyholder with any assurance that his/her coverage will continue.

Non-cancelable Provision

A non-cancelable provision states that neither the policyholder nor the insurance company can cancel a health or disability policy. The insurance company can't change the premium for policies that contain this provision as long as the policyholder pays his/her premiums. The benefits covered by this type of policy are usually a fixed amount.

Let's assume that Janice purchased a policy with a non-cancelable provision that cost $50 per month. The benefit of this provision is that Janice will never have to worry about the insurance company canceling her coverage and she knows that her premium will remain at $50 per month for the life of the policy. The only disadvantage is that the amount that the insurance company will only pay her a fixed amount if she needs to use the coverage.

Optionally Renewable Provision

With an optionally renewable provision, an insurance company can cancel the policyholder's coverage, but it can only do so at the policy's anniversary date or the anniversary of the date that the policyholder's coverage started, or when the policy's premium is due.

Let's assume that Janice takes out a policy on May 15, that has an optionally renewable provision where she pays an annual premium. If the insurance company decides not to renew Janice's policy, it can only do so on the policy anniversary and premium due date of May 15. It cannot cancel the policy at any other time.

Conditionally Renewable Provision

A policy that contains a conditionally renewable provision gives the insurance company the right not to renew a policy, but only for reasons outlined in the policy contract. If those reasons do not exist, then the insurance company will renew the policy. None of the reasons for non-renewal can relate to the health of the policyholder.

Let's assume that Janice takes out a policy with a conditionally renewable provision on June 10. During the year, Janice's health declines, but her insurance company must still renew the policy because it isn't permitted to use a change in Janice's health as a reason not to renew it.

Guaranteed Renewable Provision

In a policy with a guaranteed renewable provision, an insurance company can't cancel the policy as long as the policyholder is paying the premiums, or if he/she is under a certain age that is specified in the contract. If the insurance company chooses to change the terms of the contract, it must obtain the written permission of the policyholder doing so. Premiums for policies with a guaranteed renewable provision can increase over the life of the policy.

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