AD Banker Comprehensive Practice Exam

What type of policy grants the insurer the right to cancel on the renewal date?

1. Noncancellable policy

2. Guaranteed renewable policy

3. Contributory policy

4. Conditional policy

The correct answer is: Guaranteed renewable policy

A guaranteed renewable policy allows the insurer to cancel the policy, but only at the renewal date, while ensuring that the policyholder has the right to renew the coverage without a medical examination. This means that even if the insured's health worsens, the insurer cannot cancel the policy or refuse renewal based on health status, but they do have the ability to not renew the policy altogether at the end of the policy term. This is distinct from a noncancellable policy, which ensures that the insurer cannot cancel the policy under any circumstances as long as the premiums are paid. A contributory policy typically involves contributions from multiple parties, like an employer and employees, and does not specifically relate to cancellation rights. A conditional policy usually contains terms that specify certain conditions under which the coverage will be active or when it can be canceled, adding another layer of stipulation that doesn’t directly address the insurer's right to cancel at the renewal date. Thus, the characteristic of a guaranteed renewable policy allows for the insurer's option to cancel specifically at the time of renewal, making it the correct choice in this context.