Once the insurer approves the application and issues the policy, delivery completes the contract:
- The agent delivers the policy to the policy owner and the owner accepts it (often by signing a delivery receipt).
- The first premium must be paid and the policy delivered for the contract to be in force, unless a conditional receipt (see below) was issued.
- At delivery, the agent should review the policy with the client to confirm coverage matches the application, explain any exclusions or ratings, and address any questions.
Conditional receipt (also called binding receipt or approval receipt): issued to the applicant when the first premium is paid at the time of application. It provides limited interim coverage while the underwriting process proceeds, subject to conditions (e.g., the applicant must be in good health on the date of the application, and must qualify for the coverage applied for). If the applicant dies during underwriting and the conditions are met, the claim is paid.
Common mistake: assuming a conditional receipt provides unconditional coverage from the date of application. Coverage under the conditional receipt is contingent on the applicant satisfying the standard underwriting requirements. An applicant who would have been declined gets no benefit from the conditional receipt.
Recall: What two things must happen for a life insurance policy to come into force? What protection does a conditional receipt provide to an applicant who dies during underwriting?