Guaranteed renewable is one of the mysterious terms used in insurance contract language, usually preceded by the word non-cancellable. What do these terms actually mean and how do they affect you, the policy owner?

When your policy is “guaranteed renewable,” the insurance company promises they can't drop you as long as you pay your premiums. But here's what they don't advertise: they can still raise your rates.

What is a guaranteed renewable policy?

For guaranteed renewable disability insurance policies, the hint is in the name. As long as you continue to pay the premiums on time, the insurance company must renew your policy every year. There are no extra requirements, no health questions, nada. 

This means even if your health changes dramatically, they can't drop your coverage — giving you peace of mind when protecting your income.

However, this does still allow the insurance company to increase premiums if they want to, for multiple different reasons. This is why many professionals prefer policies that are non-cancellable as well.

Non-cancellable vs. guaranteed renewable

Insurance companies typically offer both guaranteed renewable and non-cancellable disability insurance policy options. With guaranteed renewable coverage, the insurer promises to keep your policy active as long as you pay premiums. By adding non-cancellable to this type of policy, premiums are no longer allowed to increase, so having both definitions on your policy is ideal. 

Non-cancellable policies almost always cost more upfront. It makes sense since the insurance company is taking on the risk of never raising your rates, no matter what happens in the economy or insurance markets. 

Related: Disability Insurance Cost Calculator

Is it worth paying extra for non-cancellable coverage? In my experience working with professionals with student debt, that premium stability becomes incredibly valuable when you're trying to budget for the long term — especially since disability insurance is already expensive for high-income earners. Just be sure you're comparing apples to apples when shopping for quotes.

Where to find a guaranteed renewable policy?

The most common place I see guaranteed renewable policies is in association plans. These are insurance contracts not between the insured and the disability insurance company, but between the insurance company and the association. Insurance companies need the ability to reevaluate these plans every so often, and increase rates.

One of the Big 5 disability insurance companies offers plans that are just guaranteed renewable. They can raise rates at any point in the future, but it has to be on your entire occupation class, not just the individual. These policies also come with a 24-month limitation on benefits for mental health disorders or substance abuse related disabilities.

When does it make sense to get a guaranteed renewable policy?

If getting a lower upfront premium is of paramount importance, a guaranteed renewable policy could be a better option. Rather than compromising on other coverage features, like lowering your benefit period or increasing the waiting period, for example, the guaranteed renewable option gets you stronger disability insurance coverage while still reducing initial costs. 

Just remember to factor potential premium increases into your long-term financial planning so you're not caught off guard when rates eventually rise.

Related: The Ultimate Guide to Long-Term Disability Insurance Discounts

Potential pitfalls of guaranteed renewable disability insurance

The main downside of a guaranteed renewable policy is the very real possibility of your rate going up in the future. A client recently told me their association plan increased premiums by 20% during the last renewal period! Imagine budgeting for disability protection, only to suddenly need an extra $400 to 600 annually just to maintain the same coverage.

These increases in premiums are theoretically rare (raising prices is an easy way to make policy owners mad and cancel their coverage). But if your budget is already stretched thin with student loan payments, a mortgage, and perhaps childcare expenses if you have young children, an unexpected premium hike could be the difference between being able to keep a policy or not.

Not sure which policy to choose? Ask an expert

Whenever possible, it’s best to get a disability insurance policy that is both guaranteed renewable and non-cancellable.. If you’d like a more personal conversation about which option makes the most sense for you as an individual, an independent insurance broker can give you a better idea of your different options, and help you find the perfect balance between premium cost and long-term security.

Simply complete the form below to get your personalized disability insurance quote. It takes just two minutes, and there's no obligation.