Conditional Receipt

Two applicants each pay the initial premium when they apply. Applicant ONE receives a receipt stating that coverage begins at once for a stated period, regardless of insurability, while the insurer underwrites. Applicant TWO receives a receipt stating that coverage begins only if she proves to be insurable as of the application or examination date. Both die before any policy is issued, and underwriting later shows both would have been declined. Who was covered at death?

1. A.Applicant ONE only; a BINDING receipt provides immediate coverage without regard to insurability, while applicant TWO's CONDITIONAL receipt failed its insurability condition.Correct. The binding receipt puts the risk on the insurer at once for the stated period, whereas the conditional receipt never attached because the insurability condition was not met.
2. B.Both, because any receipt issued together with a premium creates coverage.Payment of premium is common to both receipts and settles nothing. A conditional receipt attaches coverage only if its stated condition is satisfied.
3. C.Neither, because no policy was ever issued to either applicant.Both receipts are designed to provide coverage before a policy exists. That is their entire purpose, so the absence of an issued policy is not the deciding fact.
4. D.Applicant TWO only, because a conditional receipt is the stronger form of temporary protection.The conditional receipt is the weaker of the two. It withholds coverage from anyone who cannot meet the insurability condition, which is the very group most likely to need it.

Why: A BINDING receipt, also called a temporary insurance agreement, provides coverage immediately for a stated period without regard to insurability; the insurer accepts the risk during underwriting and may still decline to issue a permanent policy afterwards. A CONDITIONAL receipt provides coverage only if a condition is satisfied, most commonly that the applicant proves insurable as of the application or examination date. An applicant who would have been declined fails that condition and has no coverage.

Two policies are issued on the same day by the same insurer. On policy ONE the applicant paid the initial premium when she signed the application and received a conditional receipt; she was insurable throughout. On policy TWO no money changed hands until the producer collected the first premium and a statement of continued good health at delivery. From what date does coverage generally run on each?

1. A.Both run from the date the underwriter approved the file.Approval is an internal step. Nothing in either receipt or in the delivery process ties the effective date to when an underwriter signed off.
2. B.Both run from the date the policy was printed and mailed.Issue and mailing are administrative events. Coverage depends on whether premium was paid and on what terms it was accepted.
3. C.Policy ONE runs from delivery, and policy TWO runs from the application date.This reverses both results. The receipt with the premium is what relates coverage back, and paying nothing until delivery is what pushes the effective date to delivery.
4. D.Policy ONE generally runs from the application or examination date under the conditional receipt; policy TWO runs from delivery, when premium and the health statement were provided.Correct. A satisfied conditional receipt relates coverage back to the date it names, while a policy paid for at delivery cannot take effect before that moment.

Why: The effective date turns on when premium was paid and what receipt, if any, was given. Where the initial premium accompanies the application under a conditional receipt and the applicant proves insurable, coverage relates back to the application or examination date named in the receipt. Where nothing is paid until delivery, no coverage exists until the producer collects the premium and the statement of continued good health, so the policy takes effect on the delivery date.