Guaranteed Renewable Policy

A guaranteed renewable policy is one the insured has the right to continue in force by paying the premiums on time, and which the insurer may neither cancel nor unilaterally alter, subject to one exception that carries most of the practical weight: the insurer may raise the premium rate for an entire class of policyholders. The National Association of Insurance Commissioners sets out the standard for long-term care coverage in its Long-Term Care Insurance Model Regulation, which permits the label only where the insured has the right to continue the insurance "by the timely payment of premiums and when the insurer has no unilateral right to make any change in any provision of the policy or rider while the insurance is in force, and cannot decline to renew, except that rates may be revised by the insurer on a class basis."

So the term names a guarantee about the contract, not about its price. The stricter grade that also fixes the premium is called noncancelable, which NAIC's models spell "noncancellable", and it has its own page. Model regulations are not law until a state adopts them, and states adopt with variations, so the exact wording on any particular policy is a question of that state's insurance code.

The class-rate exception is the whole subject, and it is the part buyers discover late. A guaranteed renewable policy cannot be repriced for one person. It can be repriced for everyone in a defined rating group, which insurers ordinarily build around the year and age at issue and the benefits elected. That distinction protects exactly what it was designed to protect: the policyholder who develops a condition, files a claim, or simply gets older cannot be singled out. It protects nothing at all against a filing that raises the rate for the whole group at once, and a policyholder who reads the renewal guarantee as a price guarantee is reading a promise the contract does not make. Regulators know it reads that way, which is why NAIC's model requires a long-term care policy other than one where the insurer has no right to change the premium to "include a statement that premium rates may change."

For an individual long-term care policy there are only two permitted grades, and a third label that is not a renewal provision at all. Section 6A(1) of the same model regulation provides that such a policy "shall not contain renewal provisions other than 'guaranteed renewable' or 'noncancellable'", so the two terms are not marketing descriptions competing with a field of others. They are a closed set. Section 6A(4) then reserves "level premium" for a policy where the insurer does not have the right to change the premium, which sounds like a renewal provision and is not one. A policy can be guaranteed renewable and carry a level premium schedule that the insurer nonetheless retains the right to revise, and reading the words as interchangeable is how a buyer ends up surprised.

The disclosure the model requires is unusually blunt, and it is worth knowing what to look for. NAIC's model requires the renewability provision to be "appropriately captioned", to "appear on the first page of the policy", and to state clearly which of the two grades applies. The prescribed outline of coverage goes further and dictates the sentences: a guaranteed renewable policy must say that the company "cannot change any of the terms of your policy on its own, except that, in the future, IT MAY INCREASE THE PREMIUM YOU PAY", in capitals, in a document that must be free-standing, in no smaller than ten-point type and containing no material of an advertising nature. Where a state has adopted that model, the answer to the price question is printed on the front of the contract and again in a separate document, in the insurer's own words.

On a disability income policy the durational floor is different, and it is the shape most likely to be misdescribed. NAIC's model regulation for supplementary health and disability income protection generally ties the guaranteed renewable label to the insured's right to continue the policy until age sixty-five or eligibility for Medicare. But it carves out the policy that pays weekly or monthly benefits during a disability: such a policy may be designated guaranteed renewable if the insured has the right to continue it "while actively and regularly employed, at least until the insured has reached full retirement" as defined under the federal Social Security Act. That regulation reaches individual and group supplementary health coverage and disability income protection, and expressly does not reach long-term care, Medicare supplement or TRICARE supplement policies, each of which follows its own rules.

A second, federal use of the same words means something different, and it has no stricter counterpart. Under 42 U.S.C. 300gg-2, a health insurance issuer offering coverage in the individual or group market "must renew or continue in force such coverage at the option of the plan sponsor or the individual", and may nonrenew on six listed grounds only: nonpayment of premiums, fraud or intentional misrepresentation, failure to meet employer contribution or group participation rules, the issuer ceasing to offer coverage in the market, no remaining enrollee in the network plan's service area, and the end of membership in a bona fide association through which the coverage was made available. The regulation for individual coverage adds a point worth keeping: "Medicare entitlement or enrollment is not a basis to nonrenew an individual's health insurance coverage in the individual market under the same policy or contract of insurance." Leaving a market is not a free exit either, since an issuer that discontinues all coverage in a market in a state may not issue coverage in that market and state again for five years. And nothing in any of it fixes the price. Marketplace premiums are refiled annually while the coverage remains guaranteed renewable, which is the clearest available demonstration that the renewal guarantee and the price are two different promises.

Federal tax law requires the weaker grade, not the stronger one. A qualified long-term care insurance contract under 26 U.S.C. 7702B(b)(1)(C) must be a contract that "is guaranteed renewable". Congress did not require it to be noncancelable, and the difference explains a good deal of what long-term care buyers have experienced: the contract they hold is the one the tax code asked for, and that contract permits class rate increases by design.

The renewability provision is printed on the first page of the policy and repeated in the outline of coverage, so the grade is established before the first premium is paid. From then on the insured keeps the coverage by paying on time. The insurer may not cancel, may not refuse to renew, and may not rewrite a provision. If it wants more premium it must file a rate increase with the state insurance regulator covering an entire class of policies, and the increase applies to every policy in that class regardless of any individual policyholder's claims or health.

A hypothetical, to show what the guarantee is worth and what it is not. Suppose a policyholder buys long-term care coverage at 58 for $2,150 a year and holds it for nine years without a claim. In year ten the insurer files an increase of 40 percent for the class of policies issued to that age band in that year. The new premium is $2,150 plus 40 percent of $2,150, which is $2,150 plus $860, or $3,010 a year. Nothing about the policyholder produced that number: the same increase reaches a neighbor who bought the identical policy the same year and has been in perfect health. Now suppose instead that the policyholder had filed a large claim in year eight. The insurer still cannot raise that policyholder's premium above the class rate, cannot reduce the benefit, and cannot decline the renewal. The figures are invented for the arithmetic; what the regulation fixes is that the increase must be class-wide.

The follow-through at a rate increase is to read the alternatives the insurer offers alongside it rather than treating the letter as a bill. Reduced benefit amounts, a shorter benefit period and a paid-up option are commonly on the table, and on long-term care coverage some of those offers are themselves required. What happens if the premium simply goes unpaid is a separate subject with its own rules, covered on the insurance lapse page.

Pros

• The insurer cannot cancel or refuse to renew while the premiums are paid, so coverage survives the change in health that would make new coverage unaffordable or unobtainable.
• The insurer cannot rewrite a provision mid-contract, so the benefits, the triggers and the exclusions are fixed at issue.
• A rate increase must reach a whole class, so an individual policyholder cannot be repriced for filing a claim.
• Under NAIC's model the grade must be disclosed on the first page of the policy and restated in a free-standing outline of coverage, so it is checkable before purchase rather than after.
• It costs less at issue than the noncancelable grade, because the insurer keeps the ability to reprice.

Cons

• The price is not guaranteed, and on long-duration coverage the price is the risk that actually materializes.
• "Guaranteed renewable" reads to most buyers as a promise about cost, and the contract makes no such promise.
• A class-wide increase arrives whether or not the individual policyholder's circumstances changed, so good health and a clean claims record buy no protection from it.
• The realistic responses to a large increase all cost something: pay more, accept less coverage, or leave and lose the years of premium already paid.
• Federal tax law requires a qualified long-term care contract to be guaranteed renewable rather than noncancelable, so the tax-favored version of that coverage is the version that can be repriced.