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Disability Insurance Contractual Language |
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Individual Disability Insurance (Disability Income Insurance) Contractual Language
Renewability is a very important feature of an individual disability insurance policy. This provision offers several choices for the future based on a disability insurance company's claims experience. An issuer of disability insurance coverage may be subject to increasing risk and severe losses since even a single long-term claim for a substantial monthly benefit can add up to a tremendous amount of money. It is very difficult to predict the total payout potential for disability insurance policies containing an age 65 or especially a lifetime or graded lifetime benefit. As a result, disability insurance companies must be careful about the renewal provisions they offer in a policy and to whom they make this policy available. The policies with the best renewal provisions in the individual disability insurance marketplace are those which are noncancellable and guaranteed renewable to age 65. Guaranteed renewable only policies are also available.
The noncancellable and guaranteed renewable to age 65 approach is, from the policyowners perspective, generally more advantageous than the guaranteed renewable only approach. The noncancellable is a feature that is generally found in disability insurance policies that are marketed to white collar occupations. Noncancellable and guaranteed renewable policies are less common across the board in the disability insurance marketplace than they used to be. These policies cannot be cancelled by the company as long as premiums are paid on time, and the premiums are locked in until age 65, regardless of the claims experience on a given individual's policy or the insurance company's total book of business. The rate is guaranteed and cannot be changed (unless it is a graded premium policy but those step increases are also guaranteed in a noncancellable policy). In addition to the premium, policy provisions are also guaranteed and cannot be changed until the policyowner becomes age 65 after which the policy may be conditionally renewable. In locking itself into a policy where the rate cannot be changed, the insurance company needs to be able to price the policy accurately from inception. Inception is the only time it may set the price until the policyholder reaches age 65, after which it normally becomes conditionally renewable. This feature (after age 65) generally requires the insured to be employed on a full-time basis. There is a time limit on the conditionally renewable feature and it generally expires at around age 75.
The premiums for noncancellable provisions tend to be significantly higher than those policies without it and it may no longer be as affordable as it used to be for middle income earners. Consumers should be mindful that pricing and underwriting disability insurance is an evolving and imprecise science. Paying more for the premium guarantee offered by noncancellable policies could be well worth the money if the morbidity experience of insurance companies increases dramatically in the future. This could result in much higher premiums for noncancellable policies for future applicants, or perhaps even cause the insurance companies to stop offering them.
The guaranteed renewable provision of disability insurance is very similar to the noncancellable provisions with one important exception. That exception is the insurance company can increase the premium in the future. It is important to note that the insurance company cannot single out any individual and increase his or her premium. The insurance company must file with the state insurance department and show reason and justification for a rate increase. This rate increase may apply, for example, to a certain policy series or type, or a particular occupational class.
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Policy Forms 0100, 1100 and 2100 are underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly-owned stock subsidiary of The Guardian Life Insurance Company of America ("Guardian"), New York, NY. Policy Forms NC111 and NC112 in CA are provided by Guardian. Product provisions and features may vary by state. |
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