On November 3rd, a museum curator named Arthur applies for a $500,000 universal life insurance policy but opts not to submit the initial premium with his application. After routine underwriting, the insurer approves the policy at standard rates and ships the documents to the producer on November 18th. The producer meets with Arthur on November 21st to personally deliver the policy. At the start of the meeting, Arthur discloses that he was hospitalized for a severe stroke two days prior. Based on insurance regulations regarding policy delivery, what is the producer required to do?
- The producer must refuse to deliver the policy and return it to the underwriting department, as Arthur cannot truthfully sign the mandatory Statement of Good Health.Answer
- BThe producer should deliver the policy and collect the premium because constructive delivery legally occurred on November 18th when the insurer mailed the documents.
- CThe producer should unilaterally amend the application's medical history to reflect the stroke, collect the initial premium, and complete the delivery.
- DThe producer must finalize the delivery because the producer's apparent authority grants them the power to waive the health condition and bind the coverage.
Answer
The producer must refuse to deliver the policy and return it to the underwriting department, as Arthur cannot truthfully sign the mandatory Statement of Good Health.
When an applicant does not pay the initial premium with the application, no contract exists during the underwriting period. To effectuate the policy, the producer must deliver it, collect the premium, and have the applicant sign a Statement of Good Health. Because the applicant's health materially changed due to a stroke, he cannot sign this statement, meaning the producer must withhold the policy and return it to the insurer.
Step-by-Step Solution
Key Concept
Delivery Without Premium and Statement of Good Health