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Proposal procedure

First the proposal is checked to make certain all the questions have been answered and then against previous insurance applications and current policies to see if the life office has had contact with the life insured or proposer at a previous time. This will aid underwriting.

The proposal will then go to the underwriting department who will check if the life insured can be accepted at ordinary rates. If that is the case then the papers can be passed to the policy department so that the policy can be issued.

If the proposal can not be accepted at ordinary rates then the underwriter has three immediate options open to him/her.

1. Obtain further information before making a decision,
2. Impose some form of special terms,
3. Decline the proposal.

Most life insurance offices have limits below which medical reports are not an absolute necessity. These vary from office to office but a typical example would be a sum insured under £300,000 with an age limit less than 40 years of age.   The fact that a life office has a limit under which medicals are not usually required, does not mean that they do not have the right to request a medical report.  

The limits refer to the total sum insured for that life and not just the current policy being requested.   The idea of medical free limits saves the life insurer the cost of obtaining such as report and experience shows that in most cases these reports to not reveal significant medical defects.

Many life insurance offices now require blood tests for certain proposals because of AIDS.   Typically blood tests are compulsory for all sums insured over £500,000 but this limit may be reduced to £250,000 for separate and divorced males.

Some life offices operate free cover or guaranteed acceptance schemes. These vary from life office to life office but the general idea is that if the proposer can answer a set of simple questions about the life insured with the answer ‘No’ then the life proposal will be accepted.   There might only be one question such as,

Are you expecting to attend any hospital or have you done so in the last six months for any condition, or are you receiving any treatment for a heart condition?

These schemes were common for endowment house insurance purchase cases where the sum insured was less than £50,000.

Life insurers place a maximum limit that they want to retain on any one, life insured. This is called their retention limit. Above this limit the life office would either have to decline the risk or to share it among other insurers by way if reinsurance.

Where reinsurance is required the life underwriter will have to agree terms with the reinsurance underwriter. This will take a little longer.

Some life offices operate two tables of premium rates, one for smokers and one for non smokers.   If this is the case the proposal will contain a question to determine if the life insured is a smoker. The definition of a non smoker may be something like ‘someone who has not smoked tobacco products (except 20 cigars per year) for the last year.   Non smoker rates are cheaper than smoker rates because smoking increases the risk of a number of diseases and shortens the expectation of life.   This trend of having two sets of rates is becoming more common among life offices.
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