Guaranteed Insurability Option

What Does Guaranteed Insurability Option Mean?

A guaranteed insurability option is a rider to an insurance policy that obligates the insurance company to renew the policy for a specified duration, regardless of any changes in the policyholder’s health. The terms and conditions of a life insurance policy with this option specify that:

• The insurer cannot make any changes, except for a premium adjustment that applies to an entire class or category of policyholders.
• The policyholder must pay premiums on time.

This option may also be referred to as a guaranteed purchase option, convertible term insurance, guaranteed renewable term insurance, or conversion privilege term insurance.

Insuranceopedia Explains Guaranteed Insurability Option

When a policyholder exercises the guaranteed insurability option, they gain the right to purchase additional insurance at regular intervals. Typically, they are not required to provide the insurance company with any evidence of insurability until a specified age, usually in their 40s.

This option allows the policyholder to purchase additional insurance, up to the face value of the original policy, every three years. One of its key advantages is that it enables the policyholder to increase their insurance coverage as their income grows.

Notably, in many households, an increase in income is often accompanied by an increase in family size. This option ensures that the policyholder can adjust their coverage adequately to align with both their income and family size.