Life & Health Insurance Exam (National Portion)Underwriting and Policy IssueHard
A life insurance applicant is 50 years old and has submitted a complete application and paid the initial premium. The insurer requires a medical examination, which the applicant completes two days later. The applicant dies suddenly from an unrelated accident one day after the medical examination, but before the insurer has approved the application. Assuming a conditional receipt was issued, what is the insurer's most likely action?
- AOffer to issue a reduced death benefit policy.
- BDeny the claim because the policy was not yet approved.
- CRefund the premium paid, as no coverage was effective.
- DPay the death benefit, subject to the policy being issued as applied for.
Show answer & explanationAnswer & explanation
Correct answer: D. Pay the death benefit, subject to the policy being issued as applied for.
A conditional receipt typically provides temporary coverage from the date of application or medical exam, whichever is later, provided the applicant was insurable at that time and the policy would have been issued as applied for. Since the death was from an unrelated accident and occurred after the medical exam, the policy would likely have been issued, and thus the death benefit would be paid.
Why the other options are wrong
- A. Issuing a reduced benefit is not typically an outcome of a conditional receipt scenario after death, but rather an underwriting decision for substandard risks.
- B. Denying the claim would contradict the purpose of a conditional receipt if the applicant was insurable.
- C. Refunding premium is what would happen if no conditional receipt was issued, or if the applicant was found uninsurable.
Conditional Receipt
A receipt given to an applicant for insurance that provides temporary coverage, usually contingent upon the applicant being found insurable as applied for.
- Requires initial premium with application.
- Coverage starts from application or medical exam date (whichever is later).
- Contingent on applicant being insurable as applied for.
Memory trick: Conditional receipt is a 'promise of protection' if you pass the test.