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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.

1
Section 5.5 Review

The system of coverage that is designed to allow the insured immediate coverage and yet allows the insured to defer premium payments is known as:

a) the Conditional Receipt.
b) the Binding Receipt.
c) the Insurability Conditional Receipt.
d) Preliminary Term for Interim Coverage.
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2

If an 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. This is called a(n):

a) Conditional Receipt.
b) Binding Receipt.
c) Approval Receipt
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3

If 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, subject to any limitations. This is called a(n):

a) Conditional Receipt.
b) Binding Receipt.
c) Approval Receipt.
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4

In order to provide an applicant with a lower premium rate, the insured's age as stated in the policy can be backdated in order to save age. This time period is usually up to:

a) 3 months.
b) 6 months.
c) 9 months.
d) one year.
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