CARD T054
Conditional Receipt
A receipt describing conditions under which coverage may begin before policy delivery. Paying the initial premium alone does not establish unconditional coverage.
How it works
A conditional receipt specifies what must be true for interim protection to exist, including the date and underwriting standard it uses. An insurability-type receipt may make coverage effective from a specified application or examination date if the applicant met its conditions then. Receipt wording matters; do not teach one effective-date formula for every receipt. [13]
A receipt expressly requires an acceptable risk on the later of the application and required exam dates. The dates are May 2 and May 8. If all stated conditions are met, its specified starting date is May 8.
Payment plus a receipt is not automatically unconditional coverage. Apply the actual receipt conditions.
CARD T055
Binding Receipt
A receipt providing temporary coverage according to its terms while an application is considered. Availability and limits depend on the product and insurer.
How it works
A binding receipt or temporary insurance agreement can provide interim protection while underwriting proceeds, within stated eligibility, duration, and amount limits. It is not permission to ignore its terms. Terminology and availability vary; temporary binding coverage is less common in individual life than in many property insurance transactions. [13]
An agreement states that eligible applicants receive up to $100,000 of temporary protection for a defined period. A $500,000 application does not by itself raise that temporary limit.
Distinguish temporary coverage granted by the agreement from a conditional receipt requiring its stated underwriting conditions.
CARD T056
Policy Delivery
Providing the issued policy to its owner. Delivery and any outstanding conditions can affect when coverage takes effect.
How it works
Delivery gives the owner the issued contract and an opportunity to review it. If no earlier coverage exists, outstanding premium, acceptance of changed terms, or required health confirmation may affect the effective date. Constructive delivery can also be relevant under law and the insurer’s process. Mere physical possession is not a universal coverage test. [13] [2]
The insurer issues a policy on July 1 subject to payment and a required health statement. It is delivered July 5, but the outstanding conditions still need to be satisfied. Do not assume July 1 is automatically the coverage date.
Read the application, receipt, and issue requirements together. Delivery and effective date are separate concepts.
CARD T057
Replacement
A transaction in which new coverage causes existing insurance to be surrendered, lapsed, reduced, or otherwise changed within applicable replacement rules.
How it works
Replacement rules can apply when a new policy causes an existing policy to lapse, be surrendered, reduced, or used to finance the new purchase. A replacement may be appropriate, but compare guarantees, charges, new contestability or suicide periods, and ongoing premiums. Required disclosures depend on the state. Do not assume every second policy replaces the first. [14]
An owner surrenders an old cash-value policy to fund a new one. Compare the old surrender charge and guarantees with the new contract, rather than judging only its illustrated values.
Adding coverage while retaining an unchanged existing policy is not automatically replacement; examine the transaction.
APPLY THE TERMS
Practice questions
Select an answer, then check it to see why each option is right or wrong.
T054 · Conditional Receipt
0 of 3 answered
T055 · Binding Receipt
0 of 3 answered
T056 · Policy Delivery
0 of 3 answered
T057 · Replacement
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Sources & further reading
Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.