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Unsolicited Application What it is How it Works

Unsolicited Application: What it is, How it Works

What Is an Unsolicited Application?

An unsolicited application is a request for life insurance coverage made by an individual rather than an insurance agent or broker.

Life insurance companies heavily scrutinize this type of application because individuals with higher health risks may seek insurance on their own instead of through an insurance professional.

Key Takeaways

– An unsolicited application is a life insurance request made directly from an individual.

– These applications often raise concerns among insurers, as they tend to be from consumers with higher health risks.

– This category of insurance seekers is seen as being "self-selected" because they have chosen to seek insurance on their own, which can skew the risk pool for insurers.

– Some life insurers will refuse unsolicited applications, while others will accept the applicants but charge higher rates to account for the higher risk they pose.

– An unsolicited application may also refer to a job application where the applicant applies of their own accord and not in response to a specific job opening.

Understanding an Unsolicited Application

A person with a suspected or known health problem, such as heart disease, may submit an unsolicited application to purchase life insurance before seeking medical treatment. These applicants could skew the insured pool toward bad risks. Insurers try to screen out self-selection applicants by requiring higher rates or denying coverage altogether.

The reason for insurance carriers’ extreme scrutiny of self-selecting insurance applicants can be explained by a statistics concept called self-selection bias. Self-selection bias arises when individuals "select" themselves into a group, causing a biased sample and abnormal conditions. It is related to non-response bias, which occurs when a group of people responding has different responses than those not responding.

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Self-selection is typically a choice an individual makes when an emergency or sudden need for coverage arises, making the person a higher risk for an insurer to cover.

Disadvantages of Unsolicited Insurance Applications

Self-selection makes determining the cause more difficult, which creates problems for insurance actuaries in determining risk levels. There may be significant differences between self-selecting populations and those who aren’t self-selecting. Those who elect to submit an unsolicited insurance application may have higher-than-normal risks, which can skew risk pools and affect the accuracy of mortality tables. Self-selection bias also causes problems in other fields where statistical averages may not follow expected patterns.

Special Considerations

A related term is an unsolicited applicant. Unsolicited applicants are those who apply for a job without any advertisement or requirement from the company.

For example, a job seeker may visit a company’s website, find contact information for someone who works at the company and send them their resume. Some people choose to do this on the basis that companies don’t always advertise all of their job openings. This type of applicant applies of their own accord—not in response to any specific job opening.

As a general rule, the higher up in a company a position is, the less likely it is to be advertised. Companies usually first look for applicants internally and in their networks to save time and money.

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