The Basics of Manual Underwriting in Life Insurance
When applying for life insurance, most people are familiar with the typical process: you fill out an application, the insurer collects some basic information about you, and then the policy is either approved or denied based on an algorithm that weighs various factors such as age, health, and lifestyle. This system is called "automated underwriting." However, there’s an alternative path known as manual underwriting, which can rely more heavily on human judgment and a deeper review of the applicant’s profile. Manual underwriting plays an essential role in life insurance for those with unique circumstances or health conditions, In this article, we will explore how manual underwriting works, discuss its advantages, and give examples of when it is used in the evaluation and approval of life insurance applications.
What is manual underwriting?
Manual underwriting is the process of evaluating a life insurance application with human intervention, rather than solely relying on automated systems. While automated underwriting uses algorithms and predefined criteria like age, marital status and location, to quickly assess risk and determine eligibility, manual underwriting can involve a more detailed, personalized review of the applicant’s background and circumstances. In that way, manual underwriting is a more classical way of assessing a person’s eligibility for life insurance similar to how things were done before computers were involved in making decisions. Unlike automated underwriting, which can categorize categorizes applicants into broad risk classes, manual underwriting can offer a more granular assessment, giving people with unique situations manual underwriting involves a more detailed review by an underwriter, who can consider nuances in your health history, lifestyle, and any mitigating factors that may not fit neatly into automated guidelines. For more on underwriting, click here.
What are some of the factors an underwriter might use to approve or deny a policy?
An underwriter closely examines a range of factors like:
- Medical history: The underwriter may request more detailed information from medical records, doctors’ reports, or test results to get a bigger picture of someone’s overall health.
- Lifestyle: Things like smoking, alcohol consumption, or high-risk hobbies such as skydiving or scuba diving, are carefully evaluated in the context of the applicant’s overall risk.
- Occupation: Some jobs may be considered high-risk jobs, for example, those in the military, law enforcement, and construction. Jobs that assume a higher risk of early death or injury may require extra consideration.
- Financial situation: The applicant’s income, assets, and debts might be analyzed more deeply to assess the appropriate level of coverage and risk exposure.
When is manual underwriting used?
Manual underwriting is not typically the first step for most life insurance applications. It is usually the next step in evaluating a more complex case where an automated system was not able to fully understand the nuances of a person’s life situation. Below are some common scenarios where manual underwriting might be used:
- Health Complications or Pre-Existing Conditions: Applicants with chronic conditions such as diabetes, heart disease, or a history of cancer may benefit from manual underwriting. Automated systems may flag these applicants as high risk and reject the application outright or offer coverage at a much more expensive rate. However, using manual underwriting, an insurer might review the applicant's condition more thoroughly, looking at factors like how well the condition is managed, the person’s overall lifestyle, and recent medical improvements. For insurance policies that do not require a medical exam, click here.
- Unconventional Jobs: Certain professions are deemed riskier than others in the eyes of life insurance companies. For example, firefighters, pilots, and offshore oil drillers might be flagged by an automated system as a higher risk workers. Manual underwriting allows an underwriter to look beyond the job title and into safety measures taken on the job, experience, and the frequency of exposure to risk. A person’s job title might not match their job description and duties, or their job might have several layers of safety undetected by an automated system.
- Engagement in High-Risk Activities: Hobbies such as rock climbing, deep-sea diving, and flying small aircrafts can be exhilarating for thrill seekers but they can also make obtaining life insurance through automated underwriting difficult. However, manual underwriting can take a closer look at how often these activities are performed, the level of expertise the applicant has, and what safety precautions they follow, leading to a more personalized risk assessment.
- Financial Considerations: A person may require a life insurance policy with a substantial death benefit because of their high net worth or the need to cover large financial obligations, such as business loans. Manual underwriting may involve a closer examination of the applicant's financial profile, ensuring that the amount of coverage aligns with their financial responsibilities.
- Age: Older individuals seeking a policy in their 60s and 70s might require manual underwriting to assess their health and risk in a more detailed way. This is becoming more common nowadays with people living longer and taking better care of themselves. Many automated systems assume higher mortality risk based on age alone but manual underwriters may give older applicants more favorable evaluations if they demonstrate healthy lifestyles and clean medical records.
What does manual underwriting entail and what are the manual underwriting requirements?
Manual underwriting typically requires:
An application
A complete medical exam
A detailed risk evaluation by an underwriter that may include an assessment of medical records, a listing of lifestyle habits, and can sometimes even include an interview with an application and their doctor, with permission from the applicant of course
Based on a detailed review, the underwriter will decide whether to approve, deny, or offer modified coverage. In many cases, manual underwriting allows the underwriter to tailor a policy more precisely to the applicant's unique situation.
What are the benefits of manual underwriting?
There are several advantages to manual underwriting, particularly for those whose life circumstances may not fit into the neat boxes used by automated systems. These include:
- Greater Flexibility: allows for unique cases and personalized detail
- Tailored Risk: when an automated system might yield an automatic rejectiton, manual underwriting may result in an accepted application
- Potential for Better Premiums: Although manual underwriting is often associated with higher-risk applicants, it does not always result in higher premiums. Sometimes, a thorough review can uncover favorable factors that offset risks, resulting in lower premiums than what would have been determined by an automated system.
What are some of the drawbacks of manual underwriting?
Though manual underwriting offers more flexibility, it has its downsides, like:
- Longer Processing Time
- More Invasive
- Higher Costs, as an underwriter is more involved in the application and assessment, there is a cost associated with more work, and there is also a chance that premiums might actually be higher if more risk is uncovered
Conclusion
Manual underwriting in life insurance provides a personalized approach that offers flexibility and deeper evaluation compared to automated systems. It is especially beneficial for people with complex medical histories, high-risk occupations, and greater financial needs. While the process may be more time-consuming and involve work on the part of you and your underwriter, it can lead to a more personalized decision for individuals who might otherwise be overlooked by automated underwriting. For applicants whose circumstances don't align well with automated algorithms, manual underwriting can provide an opportunity to explore life insurance coverage that may better fit their specific needs.
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