Examkin

Question

Difficulty: HardInitial Premium and Premium Receipts

On September 1, a client completes a life insurance application, submits the initial premium payment, and receives a conditional insurability receipt from the producer. Under the insurer's guidelines, no medical examination is required for this specific face amount and age. On September 6, the applicant suffers a severe stroke and is hospitalized in critical condition. Unaware of the medical event, the home office underwriter approves the policy as a standard risk on September 10 and mails it to the producer. On September 12, the producer attempts to deliver the policy, but the applicant passes away later that same day. Based on the legal properties of premium receipts, what is the insurer's liability regarding the death benefit claim?

  1. A
    The insurer will deny the claim and refund the premium because the producer could not obtain a signed Statement of Good Health at the time of policy delivery.
  2. B
    The insurer will deny the claim and refund the premium because a conditional receipt does not trigger coverage until the date the application is formally approved at the home office.
  3. The insurer must pay the full death benefit because coverage became effective retroactively on September 1, when the application was signed and the premium was collected.Answer
  4. D
    The insurer will deny the claim and refund the premium because the agent did not physically hand the approved policy to the insured prior to the fatal medical event.

Answer

The insurer must pay the full death benefit because coverage became effective retroactively on September 1, when the application was signed and the premium was collected.
The correct answer accurately applies the rule that a conditional insurability receipt provides retroactive coverage to the date of the application (or the date of the medical exam, if one was required), provided the applicant was insurable at that specific time. Because no medical exam was needed and the applicant was insurable as a standard risk on September 1, the coverage legally took effect on that exact date. The severe stroke that occurred five days later does not void the in-force coverage, and the insurer must pay the claim.

Step-by-Step Solution

1
Analyze the actions taken on the application date (September 1).
The applicant paid the initial premium and received a conditional insurability receipt.
This establishes the foundation for determining the potential retroactive effective date of coverage.
2
Determine if a medical exam was required and how it affects the timeline.
No medical exam was required for this policy.
Under a conditional receipt, coverage becomes effective on the date of the application or the date of the medical exam, whichever is later. Since no exam was needed, the effective date defaults to September 1.
3
Evaluate the impact of the September 6 stroke and the lack of a Statement of Good Health.
The subsequent stroke does not invalidate the coverage, and no Statement of Good Health is required.
Because the premium was paid upfront, the applicant's insurability was locked in as of September 1. A Statement of Good Health is only legally required upon delivery if no initial premium was paid with the application.

Key Concept

Conditional Insurability Receipts and Effective Dates
Rate this question

Topics

Initial Premium and Premium Receipts

More questions from this topic