Noncancellable Insurance Policy - Is It Right For You?

Key Takeaways

Noncancellable insurance locks in fixed premiums and benefits for life.
It’s more costly but prevents premium hikes or coverage changes.
Policies expire at a set age, usually around retirement.
Age, health, and specialty significantly influence premium costs.

Table of Contents

What Is a Noncancellable Insurance Policy?

It’s a type of disability insurance policy that can’t be canceled, nor can its benefits be reduced or its premiums be increased for life.

Your insurance company can’t change any aspects of the agreement while the noncancellable policy lasts.

How Does A Noncancellable Insurance Policy Work?

When you apply for disability insurance, the company determines the cost of your policy according to many factors, such as age, health status, and the risk of disability related to your work.

Most insurance policies have a long benefit period that extends for many years, often for the entire course of your career. You can choose how long you want the insurance plan to last. Most people prefer to keep their insurance policy until retirement, which is around the age of 65.

You also control how much your insurance company can adjust your premiums and coverage. If you go for a noncancellable insurance policy, your insurance company agrees that it can’t increase your premium costs even if you develop health problems as you age.

The company can’t cancel your coverage or revoke any of your insurance benefits.

You’ll usually pay more for noncancellable coverage, but it gives you peace of mind knowing exactly what your insurance will cover at the time and how much it costs you.

Advantages of Noncancellable Insurance Policies

Fixed Premium

Having fixed policy premiums is beneficial because of the financial stability. Still, there’s another advantage that few people know about—you can lock in a meager premium early on and keep it for years.

Doctors who want to buy physician disability insurance usually do this trick while they’re still residents because the premium costs are much lower than those for physicians.

That means that, as a resident, you can secure an excellent noncancellable insurance plan with cheap premiums for a long time. This saves you tons of money in the long run, and the insurance company can’t do anything about it because the terms are set in stone.

No Policy Re-qualification

Insurance companies rely on statistics when they determine your premium costs. That’s why most companies raise your premiums as you get older because you’re more likely to develop health problems with age.

In other words, the company will re-qualify your age and health status every few years or so and increase your premiums accordingly. However, with noncancellable policies, the insurance company cannot do so.

Downsides to Noncancellable Insurance Policies

Higher Costs

Noncancellable insurance policies usually cost much more than other types of disability insurance, because the companies take on a more significant risk.

However, choosing the right plan according to your health status could save more money in the long run.

Age Limits

While noncancellable insurance policies can’t be canceled, they can still expire when you pass the age limit set in the terms and conditions. Even if you’ve agreed on a fixed term, insurance companies can re-evaluate your policy when you reach age 65.

However, this usually isn’t a problem, since many people don’t need their disability insurance beyond retirement age.

What Are The Alternatives to Noncancellable Policies?

There are two other types of disability insurance coverage, guaranteed renewable and conditionally renewable, both of which can be modified by your insurance company.

Guaranteed Renewable Policy

A guaranteed renewable policy is a disability insurance plan that, as the name suggests, is guaranteed to be renewed by your insurance company at the end of the policy term.

Much like noncancellable policies, you’re guaranteed the same benefits as the original policy when you renew this type of insurance.

However, the main difference between noncancellable and guaranteed renewable policies is that the insurance company can increase your premiums with renewals.

In other words, the insurance plan is guaranteed to be renewed, but you’re not guaranteed the same rates you were paying before.

A subtype of this insurance category, which is called guaranteed renewable-only policies, allows companies more control under broader terms. They must renew the policy but can modify the premiums and benefits only within certain limits.

Conditionally Renewable Policy

The main lure of a conditionally renewable policy is its relatively low premium costs compared to noncancellable and guaranteed renewable plans.

However, conditionally renewable policies give the insurance company more power over you as a buyer. They can alter the policy terms, such as the premium costs and coverage under certain conditions stated beforehand.

For example, you might be denied a continued policy if you leave your job or your income drops below a certain level.

Factors Affecting The Cost of Noncancellable Disability Insurance

Here are the main factors that can impact the cost of setting up a noncancellable disability insurance policy.

Age

While the premiums for noncancellable insurance are fixed, the initial cost stated in the terms and conditions depends on your age.

For example, the average cost of disability insurance is between $290-$900 per month. The older you are, the closer your fixed costs will be to the $900 mark.

Health Status

When you first sign up for insurance, your height, weight, and prior medical conditions are noted during the medical underwriting process. Whether or not you smoke is also a significant factor when determining your overall health status.

As a smoker, you can expect to pay higher premiums for your disability insurance.

Gender

Many insurance companies charge higher premiums for women because women are more likely to experience health problems than men.

Medical Speciality (For Physicians)

Your medical specialty can impact your noncancellable insurance premiums because your specialty affects your risk level. For example, a dentist’s disability insurance can be different from that of a surgeon or a chiropractor.

Specialties with higher claims will likely pay higher premiums.

Benefit Amount

The benefit amount is how much you will receive in benefits if you become disabled, lose your life, or are hospitalized for a long time.

The more benefits included in your noncancellable policy, the greater the premiums. You should create a list of the top disability insurance companies for your profession and get a quote from each.

Benefit Period

After deciding on your benefit amount, you’ll need to determine how long you’d like to continue receiving these benefits, which is the duration of the benefit period.

Generally speaking, the longer the benefit period, the greater your premiums. That’s why noncancellable policies are usually more expensive than cancelable insurance.

Elimination Period

The elimination period is how long it takes for the insurance company to pay your benefits if you become disabled. It’s usually either 30, 60, 90, 180, or 365 days before you’re allowed to collect benefits.

If you go for longer periods, your noncancellable policy premiums will be cheaper.