Final answer:
A 'non-cancellable' disability plan indicates that the insurer cannot increase premiums or cancel the policy, ensuring stable coverage for the policyholder. This is vital in the context of insurance market stability and government regulation.
Step-by-step explanation:
A prospective buyer should understand that a disability plan presented as 'non-cancellable' means that premiums cannot be increased and that the policy cannot be canceled by the insurer as long as policy premiums are paid on time. It essentially provides a guarantee that the policyholder will continue to have coverage at the same premium rate. This contrasts with other policies that may have variable rates or can be canceled by the insurer due to reasons like changes in health status or occupational risks.
This term is particularly important in understanding how insurance policies work and in acknowledging the role of government laws and regulations in the insurance industry. When an insurance company issues a non-cancellable policy, it usually means they have assessed the risk beforehand and are willing to offer a fixed premium despite the potential for adverse selection, where high-risk individuals are more likely to purchase insurance.
Furthermore, if an insurance company tried to cover losses from high-risk groups by increasing premiums for all, this could lead to a scenario where those who don't present high risks are disincentivized to buy insurance, potentially leading to market failure.