A producer receives a newly issued $2.5 million key-person life insurance contract for a client. During underwriting, the insurer added an aviation exclusion rider, which constitutes a legal counteroffer. Furthermore, the client did not submit an initial premium payment with the original application. To properly execute actual delivery and legally establish the effective date of coverage, arrange the producer's mandatory actions in the strictly required chronological sequence.
- 1Present the policy and disclose the terms of the aviation exclusion rider to the applicant.
- 2Secure the applicant's signature on the policy amendment form to legally accept the counteroffer.
- 3Require the applicant to complete and sign a Statement of Good Health.
- 4Collect the required initial premium payment.
- 5Release the physical policy and issue the official delivery and premium receipts.
Answer
The correct chronological sequence is: 1) Disclose the exclusion rider, 2) Obtain signature on the amendment, 3) Secure the Statement of Good Health, 4) Collect the initial premium, and 5) Release the policy and receipts.
This sequence adheres to strict contract law and state insurance regulations regarding policy delivery. The producer must first present the counteroffer (disclosure) before the client can accept it by signing the amendment. Because no premium was paid initially, there was no conditional coverage; therefore, insurability must be verified via a Statement of Good Health at the exact time of delivery. Once the modified terms are accepted and health is verified, the client provides the legal consideration (premium). Only after consideration is received and all conditions are met should the policy and binding receipts be physically handed over (actual delivery).
Step-by-Step Solution
Key Concept
Policy Delivery Procedures for Rated Policies and Unpaid Initial Premiums