New Jersey Life and Health State Practice Exam

What type of health insurance policy allows an insurer to change the policyowner's premiums, but NOT cancel the policy?

1. Non-renewable policy

2. Guaranteed renewable policy

3. Term policy

4. Permanent policy

The correct answer is: Guaranteed renewable policy

A guaranteed renewable policy is designed to secure ongoing coverage for the policyholder, with the stipulation that the insurer cannot cancel the policy as long as the premiums are paid. This policy structure allows the insurer to adjust the premium rates, but only at specified intervals and not based on the health status of the insured. This means that although the cost of premiums may increase, the policy remains in force, providing assurance that the policyholder cannot suddenly lose their coverage. In contrast, a non-renewable policy typically provides coverage for a limited time and may cease upon expiration. A term policy is limited to a specified duration and does not allow for renewal; if the term ends, the coverage ceases. Lastly, a permanent policy usually provides lifelong coverage with stable premiums, but the insurer may have the option to adjust premiums under specific conditions, which varies according to the policy type but is generally different from guaranteed renewable options. Thus, the correct choice emphasizes the unique characteristic of guaranteed renewable policies in maintaining coverage while allowing for premium changes, which distinguishes it from the other types of policies listed.