An insured holds an individual guaranteed renewable medical expense policy. Which of the following is a valid reason for the insurer to terminate this policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Even a guaranteed renewable policy can be terminated for nonpayment of premium, because the insured's failure to pay breaches the consideration on which the contract depends. Guaranteed renewable means the insurer may not cancel the policy or refuse to renew it because of the insured's health, and it may not alter the policy provisions unilaterally; it can only change rates for an entire class of policies. Termination grounds tied to premium nonpayment, fraud, or material misrepresentation are the exceptions to the insurer's obligation to renew. This distinction between the insurer's right to terminate and its duty to renew is a core contract concept.
Why the other options are wrong
- B) Developing a chronic illness is exactly the kind of health deterioration that a guaranteed renewable policy protects against; the insurer cannot cancel on that basis.
- C) Filing claims is the legitimate use of the insurance; the number of claims does not give the insurer a right to terminate a guaranteed renewable policy.
- D) A change to a riskier occupation could affect underwriting on a disability policy but is not a stated ground for terminating a guaranteed renewable medical policy.
Memory hook
Guaranteed renewable: health can never end the policy, but the premium bill always can.