5.5.6 Policy Effective Date
Almost everything purchased requires some sort of down payment. The same is true with insurance to some extent. Though it is possible to process an application without an initial premium deposit, it is usually not binding or effective until the initial premium (or portion of it) is received by the insurer. The agent benefits with respect to solidifying the sale and expediting commission payments. The insurer benefits through the collection of capital and the proposed insured benefits through the expeditious approval of the application submitted. When initial premium payments do not accompany the application, the whole process may be delayed.
Most people wouldn't think that the effective date is that important, but it is most important. Not only does it stipulate when the contract is valid, but it also sets the policy anniversary date.
Usually, a receipt is issued when the initial premium deposit is collected. Generally, the date of the receipt would be considered the effective date of the policy.
However, if the initial premium deposit is NOT collected and submitted with the application, the policy effective date is typically at the discretion of the insurer and is often the date the policy is issued by the insurance company. However, the policy will not be truly effective until it is delivered to the applicant and the initial premium payment is made. Also, a "Statement of Continued Good Health" may be requested.
