5.5.5 The Binding Receipt
The binding receipt also states that the effective date of the policy is the date of receipt of the initial premium; however, there is an additional twist. Should the insured die before the application is fully processed, the benefits of the policy are fully payable, subject to any limitations specified. The binding receipt binds the insurer to the agreement unconditionally when benefits are due up to a limit expressed in the policy (usually not more than $100,000).
As stated previously, if a conditional receipt had been issued and the applicant were to die before a policy is issued, the company will pay the death benefit but only if the policy would have been issued. On the other hand, if a binding receipt had been issued and the applicant were to die before the policy is issued, the company will pay the death benefit whether or not the policy would have been issued (of course, subject to any limitations specified).
