It turns out you can teach an old dog new tricks. Like most of you, I was trained to include the non-cancelable feature in every individual disability insurance (IDI) policy that I sold. In fact, back when I was 24 years old, I purchased an IDI policy for myself. At that time, I had to choose between a policy that was non-cancelable and guaranteed renewable and a policy that was simply guaranteed renewable. Of course I chose the non-cancelable policy, even though I had to pay more.
That policy was in force for 29 years and in that time, the premium never went up. Also, in that time, I occasionally wondered if the non-cancelable feature was really worth the extra money.
Then, a few years ago, some carriers started introducing guaranteed renewable policies with the option to add a non-can rider. And that is when my thinking about the non-can nonsense started to evolve. However, before I get into the details, let’s quickly review some DI policy basics.
A quick review of DI policy basics
The purpose of the non-can rider and other renewal provisions is to keep the policy in force even if the client’s health status changes. There are four types of renewal provisions for disability insurance policies:
Non-Cancelable and Guaranteed Renewable (usually considered most desirable): This policy guarantees that after the policy is placed in-force, there will be no changes to the premium or to the policy benefits through age 65 — regardless of the insured’s working status, health or income level. This is THE iron clad, no-changes policy that clients should have. However, this gold standard can add 35 percent or more to the price of the policy.
Guaranteed Renewable (next best): With this type of policy, the carrier cannot change the policy provisions, but it can make a change to the premium for an entire group of policyholders, categorized by state, occupation class, and policy year. The change would need to be approved by insurance regulators before going into effect and, in some cases, could take many years for approval.
Conditionally Renewable (OK with some plan types): This type of provision is usually found in group and association plans. It states that the policy is renewable only if the insured continues to meet certain conditions outlined in the policy, such as maintaining employment or association membership. Rate increases are permitted at certain policy milestones established when the policy is written.
Optionally Renewable and/or Cancelable (avoid this if possible): With an optionally renewable policy the carrier has the discretion to change the terms and/or cancel the policy at an individual policy level. Use this only when nothing better is available – usually with hard to place cases.
For 29 years, I diligently followed the old school teachings and have embraced non-cancelable and guaranteed renewable policies.
It’s a new day. We’re working with new kinds of income protection consumers. Individual disability insurance shouldn’t be a solution that is only affordable for surgeons and executives. Regular people need it too. Therefore, we need simple, practical strategies that work for middle-income clients’ budgets.
After all, we’re operating in a difficult economy. We know Americans desperately need income protection and many prospects bail at the last minute because of price barriers. We also know that helping clients secure SOME protection is a much better option than leaving them with NO income protection at all.
So with these facts in mind, and also knowing that adding a non-can provision can increase the cost by 35 percent, I now believe that non-can is NONSENSE for most middle-income and budget-sensitive clients.
A new approach:
Work with carriers that have flexibility in the non-can area. Some carriers ONLY sell policies that are non-cancelable and guaranteed renewable. That’s great for affluent clients but it’s a dead-end situation when you need rate flexibility. Make sure you have access to at least one carrier that allows you to choose the renewal provision.
For price sensitive clients, offer a guaranteed renewable policy instead of the non-cancelable rider. If you wish, you can offer the non-can rider as a policy upgrade and let the client choose between policy A and policy B instead of saying “no” to the one option presented.
If price is still an issue, ask the client what he or she can afford and build the policy to that budget. As stated before, some protection is much better than no protection. Don’t take the lazy way out and jump ship on middle-income clients who need your help.
I know there are some old DI dogs out there who will profusely disagree with my thoughts. Admittedly, it’s counter-intuitive to NOT offer the very best policy available. So here’s the thing: If you are satisfied with your success rate and price is not an issue that you need to overcome, keep doing what you’re doing. If on the other hand, you consistently encounter price objections and routinely fail to write quoted policies, try eliminating the non-can nonsense.
Note: The article above was originally featured in the March 2013 issue of Health Insurance Underwriter Magazine.