Guaranteed Insurability Option

Definition - What does Guaranteed Insurability Option mean?

A guaranteed insurability option is a rider to an insurance policy that requires the insurance company to renew the policy for a specific duration regardless of changes to the health of the policyholder. The terms and conditions of a life insurance policy that has this option specify that:

  • The insurer cannot make any changes, barring a premium change that applies to an entire class or category or policyholders and,
  • The policyholder needs to pay the premiums on time.

It may also be known 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 decides to use the guaranteed insurability option, they have the right to purchase additional insurance at regular intervals. Typically, they do not need to provide the insurance company with any evidence of insurability up to a specified age, usually in the 40s.

Therefore, the policyholder can purchase additional insurance up to the face value of the original policy every three years. One of the principal benefits of this option is that it enables the policyholder to increase their insurance coverage offered as their income increases.

It is worth noting that in many households, an increase in income often results in a family size increase. Therefore, this option allows the policyholder to increase coverage adequately in accordance with their income and family size.

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