Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Health InsuranceHard
A client is comparing various health insurance plans and is particularly interested in the renewability of the policy. An insurer offers a policy with a 'Non-Cancellable' provision. What does this provision guarantee to the insured?
- AThe insurer has the option to renew the policy or not at each renewal date.
- BThe policy cannot be canceled by the insurer, and premiums cannot be increased.
- CThe policy will renew automatically, but premiums can be increased for the entire class of policyholders.
- DThe insurer can only cancel the policy for non-payment of premiums.
Show answer & explanationAnswer & explanation
Correct answer: B. The policy cannot be canceled by the insurer, and premiums cannot be increased.
A Non-Cancellable provision is the most restrictive for the insurer and most favorable for the insured. It guarantees that the insurer cannot cancel the policy for any reason (other than non-payment of premiums) and also guarantees that the premiums will remain level for the life of the policy.
Why the other options are wrong
- A. This describes an 'Optionally Renewable' policy, which offers the least security to the insured.
- C. This describes a 'Guaranteed Renewable' policy, where premiums can increase by class.
- D. This describes a 'Guaranteed Renewable' policy regarding cancellation, but doesn't address premium stability.
Non-Cancellable Provision
The most favorable renewability provision for the insured, guaranteeing that the insurer cannot cancel the policy and cannot increase the premium rates.
- Insurer cannot cancel (except for non-payment).
- Premiums are guaranteed to remain level.
- Provides the highest level of security for the policyholder.
Memory trick: Non-Cancellable: No cancellation, no premium hike – double safe!