Non-Cancelable Disability Insurance: What is it? Is it worth it?

A disability insurance policy is considered non-cancelable if the insurance company cannot raise rates as long as the premium is paid. A non-cancelable policy typically has a 20% additional premium charge versus guaranteed renewable only policies. Guaranteed renewable only policies do not have guaranteed level rates. However, in order to raise rates on guaranteed renewable policies, the insurance company has to raise the rate on the entire risk class (block of similar policies) and the state insurance department has to approve it. Some guaranteed renewable policies also guarantee rates for the first 3 years. Conventional wisdom recommends that every physician should purchase a non-cancelable policy.

While having guaranteed level rates is attractive, there are instances when the cost for a non-cancelable policy may not be worth it. Here are a couple of examples:

1. You are establishing coverage for 10-15 years.
2. You have compared the cost of a non-cancelable policy to a guaranteed renewable one and determined that you are willing to accept the risk of the rate increasing. One way to do this is to compare the savings (with interest applied) of not having a non-cancelable policy with the cost of a non-cancelable policy. We then determine by how much the rate would have to increase in order to make the non-cancelable policy worth it.

As a physician disability insurance broker, we present all options in order to help our clients make an informed decision.




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