Arizona Life and Health Practice Exam

What does a Guaranteed Renewable provision allow?

1. Premiums can never increase

2. Premiums can only be increased per rate class

3. Renewal is automatic without future underwriting

4. Policy benefits can vary at renewal

The correct answer is: Premiums can only be increased per rate class

A Guaranteed Renewable provision is a feature found in certain insurance policies that ensures the policyholder has the right to renew the insurance coverage at each renewal date. This renewal is automatic, meaning that the insured does not have to prove insurability or undergo future underwriting, which provides stability and peace of mind to the policyholder. The correct interpretation of this provision focuses not only on the renewal aspect but also on the specifics regarding premium adjustments. While the premiums are generally not guaranteed to remain unchanged, they can be adjusted based on specific criteria. For instance, an insurer can increase premiums, but it must apply the increase uniformly across all policyholders in the same rate class rather than selectively targeting individuals. This means that while the policyholder's premiums can increase, it is done based on a broader rate structure rather than individual health changes or underwriting decisions. This provision seeks to balance providing ongoing coverage security to the insured while allowing insurers the necessary flexibility to adjust premiums in response to medical inflation or changes in loss experience across defined groups.