New Jersey Life and Health State Practice Exam

A clause that allows an insurer the right to terminate coverage at any anniversary date is called a(n):

1. Mandatory renewability clause

2. Non-renewability clause

3. Optional renewability clause

4. Guaranteed renewability clause

The correct answer is: Optional renewability clause

The clause described in the question, which permits an insurer to terminate coverage at any anniversary date, is known as an optional renewability clause. This type of clause gives insurers the discretion to decide whether or not to renew a policy at each renewal point. Importantly, if the insurer chooses not to renew the policy, they must notify the policyholder of their decision by the specified timeline stated within the policy. This differs notably from the guaranteed renewability clause, which mandates that the insurer must renew the policy as long as the premiums are paid, regardless of any changes in the insured's condition or the insurer's policies. The mandatory renewability clause also requires renewal; however, it stipulates conditions under which the policy must continue. The non-renewability clause, on the other hand, indicates that coverage cannot be renewed under any circumstance. Understanding the implications of these clauses is crucial for both consumers and insurers, as they determine the stability of coverage and the rights of the policyholders regarding their insurance agreements.