Maryland Life and Health Insurance License Practice Exam

A noncancellable policy, in contrast to a guaranteed renewable policy, has which characteristic?

1. Premiums can be raised

2. Suitable for short-term insurance

3. May never raise premiums

4. Can be canceled at any time

The correct answer is: May never raise premiums

A noncancellable policy is designed to provide the policyholder with a significant level of security regarding their insurance coverage and premiums. With this type of policy, once it is issued, the insurer cannot raise premiums, nor can they cancel the policy as long as the premiums are paid on time. This guarantees the policyholder that their coverage will remain in force at the same premium rate for the life of the policy. This characteristic distinguishes noncancellable policies from guaranteed renewable policies, where the insurer is allowed to increase premiums based on certain factors, even though the policy itself cannot be canceled. This makes noncancellable policies particularly attractive for individuals seeking long-term insurance solutions without the fear of premium increases. In contrast, the other options do not align with the unique feature of noncancellable policies. Premiums in a noncancellable policy cannot be raised, and the intention is generally for longer-term coverage, not short-term insurance, nor can these policies be canceled by the insurer at any time.