South Carolina Insurance Practice Exam

Disability income plans which require that the insurer can NEVER change or alter premium rates are usually considered what type of plans?

1. Cancelable

2. Noncancellable

3. Guaranteed renewable

4. Adjustable premium plans

The correct answer is: Noncancellable

Disability income plans that specify that the insurer cannot change or alter premium rates are termed noncancellable plans. This classification is crucial because it ensures policyholders that their premiums will remain stable throughout the life of the policy, regardless of any changes in their health status, age, or changes in the insurance market. This stability provides policyholders with peace of mind, knowing what their financial commitments will be over time. In this context, noncancellable plans are appealing because they guarantee a right to renew the policy without the risk of increased premium costs. This is especially important for individuals who may face higher medical or lifestyle risks in the future, which could lead to higher premiums under different types of plans. On the other hand, cancelable plans can be terminated by the insurer at any time, which would not provide the same level of security or assurance. Guaranteed renewable plans allow the insurer to raise premiums but only on a class basis rather than individually, lacking the complete premium stability offered by noncancellable plans. Adjustable premium plans allow for fluctuations in premiums based on market conditions or other risk factors, again contrasting with the certainty provided by noncancellable plans.