What Is a Conditional Binding Receipt?
A conditional binding receipt is involved in life, health, and certain property insurance contracts; if the insured is deemed to be covered by the insurer, the coverage begins on the date the insured receives the conditional binding receipt.
Typically, a premium payment must be received by the insurer along with a completed acceptable application in order for the insured to obtain the receipt. This may also be called a "conditional receipt" or a "binding receipt," depending on the type of insurance.
Key Takeaways
- A conditional binding receipt is involved in life, health, and certain property insurance contracts.
- If the insured is deemed to be covered by the insurer, the coverage begins on the date the insured receives the conditional binding receipt.
- A life and health insurance policy without a conditional binding receipt is not effective until it is delivered to the insured and the premium is paid.
- The function of a conditional binding receipt can actually be divided into two separate receipts: a conditional receipt and a binding receipt.
Understanding Conditional Binding Receipts
If a premium accompanies an application, a conditional binding receipt provides that coverage will be in force from the date of application or medical examination, so long as the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination, and other usual sources of underwriting information. A life and health insurance policy without a conditional binding receipt is not effective until it is delivered to the insured and the premium is paid.
So long as the insured is going to receive the policy anyway, the insurer is obliged to cover a claim should one occur between the time the application is received and the time the policy is officially in place. If, however, the insured is denied coverage as the typical underwriting process progresses, the insurer could nullify the conditional binding receipt, even if a premium was collected.
The function of a conditional binding receipt can actually be divided into two separate receipts: a conditional receipt and a binding receipt.
Conditional Receipts
The conditional receipt is most common. Under a conditional receipt, the applicant and the insurance company form a "conditional" contract that is contingent upon the conditions that existed when an application or medication exam is completed. It provides that the applicant is covered immediately as long as they pass the insurer's underwriting requirements. It is the insurance agent's responsibility to tell the applicant they are covered on the condition they prove to be insurable and pass a medical exam if one is required.
A conditional receipt gives an insurance company a window of time in which they can ultimately issue or refuse to approve the policy. If during this time, the applicant for a life insurance contract dies, the company will pay a death benefit if the policy would have been issued.
Binding Receipts
A binding receipt states an insurance policy is effective upon receipt of initial premium payment. However, should the insured die before the application is processed, benefits are fully payable, subject to limitations.
The binding receipt binds an insurer to the agreement unconditionally when benefits are due up to the limits of the policy.
focusNode
Nội dung chính
- Completing Application, Underwriting and Delivering the Policy
- When the first premium is collected at the time of application for a policy the effective date of coverage?
- What does initial premium payment mean?
- When the first premium is collected at the time of application for a policy the effective date of coverage is quizlet?
- When an agent collects the initial premium from the applicant the agent should issue the applicant a?
Didn't
know it?
click below
Knew it?
click below
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Completing Application, Underwriting and Delivering the Policy
| Required Signatures | Proposed insured, policy owner (if not the insured) and the agent |
| Changes in the Application | Changes made to an application after it is completed must be initialed by the applicant; no whiteout is allowed |
| Consequences of Incomplete Applications | The insurance company will return it to the agent to be completed which will delay the underwriting process |
| Warranty | A statement on the application that is guaranteed to be true |
| Premium Receipt | A receipt is usually given to the applicant at the time the application is completed and the initial premium is paid. |
| Conditional Receipt | States that coverage will be effective either on the date of the application or on the date of the medical exam, whichever is later, as long as the policy is issued as applied for; issued if the initial premium is paid at the time of application. |
| Replacement | Any transaction in which a new policy is purchased and the old policy is either lapsed, forfeited, or surrendered for its face amount or cash values are diminished. |
| Buyer's Guide | Contains generic information about life policies and must be provided at the time of application, or upon requested |
| Policy Summary | Describes the features and benefits of the policy being issued and must be provided no later than policy delivery, or upon requested |
| HIPAA (Health Insurance Portability and Accountability Act) | A federal law that protects the privacy of certain individual health information. All medical information must remain confidential during underwriting. Commissioner must approve a company’s consent form prior to use. |
| USA Patriot Act | Passed in 2001 (9/11 attack) to strengthen measures to protect against terrorism. Requires insurer to establish Anti-Money Laundering, report suspicious activity, verify the identity of customers and report transactions in excess of $10,000 in currency |
| Money Laundering | the process of taking money obtained through crime and putting it through the financial system in such a way as to disguise its illegal origins and make it appear legitimate. |
| Money Laundering Steps | Placement: getting the money into the financial system Layering: carrying out financial transactions to separate the illicit proceeds from its source Integration: making the money derived from illicit proceeds appear legitimate |
| Insurable Interest | The possibility of losing money or something of value in the event of a loss. Insurable interest must exist between the policy owner and the insured at the time of application, not at the time of loss |
| Medical Information Bureau (MIB) | A nonprofit member funded trade organization that collects and shares adverse medical information from insurance companies. An application cannot be refused because of information discovered through the MIB |
| Underwriting | Risk selection and classification |
| Fair Credit Reporting Act | Established as a way to protect consumer privacy by creating procedures to ensure that records are confidential, accurate, relevant and properly used. It protects against the circulation of inaccurate information |
| Consumer Report | Includes written and or oral information obtained from employment records, credit reports, and other public sources regarding character, reputation and habits. |
| Investigative Consumer Report | Similar to a consumer report except that it includes interviews with associates, friends, and neighbors of the consumer |
| Preferred Risk | These applicants have a superior lifestyle, physical condition, and habits: they pays the lowest premium (lowest risk) |
| Standard Risk | These applicants are representative of the majority of people; most insureds fall in the standard classification (average risk) |
| Substandard Risk | These applicants are not insurable at standard rates because of some health issue, medical history, occupation, or dangerous habits; also known as “rated” and pay the highest premium (highest risk) |
| Declined Risk | If the risk is too great, the underwriter will decline the application |
| Stranger-originated life insurance (STOLI)/Investor-originated life insurance (IOLI) | Violates the principle of insurable interest since the purchaser of the policy has no interest in the life of the insured; investors (strangers) persuade policy owners to take out new life insurance with the investors named as the beneficiaries. |
| Delivering the Policy | Agent explains the the policy and discuss provisions, riders, exclusions, any ratings, and any amendments and have the policy owner to sign a receipt |
| Statement of Good Health | If no premium was paid with the application, the agent will be required to collect the full premium and a signed statement of good health from the applicant at the time of policy delivery. |
| Contract | An agreement between two or more parties enforceable by law. Insurance contracts are unique and the law of contracts had to be modified to meet insurance needs |
| Offer and Acceptance (Agreement) | The offer must be accepted in its exact terms; in insurance, the offer is the submitted application and the acceptance is when the underwriter approves the policy |
| Consideration (Element of a Contract) | Something of value that each party gives to the other; the insured pays the premiums and the insurer promises to pay the benefit in the event of loss |
| Competent Parties (Element of a Contract) | Parties to the contract must be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol |
| Legal Purpose (Element of a Contract) | The contract must be legal and not against public policy; insurance policies must have both insurable interest and consent |
| Contract of Adhesion (Unique Characteristic) | The contract is prepared by one party and accepted or rejected by the other; a “take-it-or-leave-it” contract offered by the insurer with no negotiation |
| Aleatory (Unique Characteristic) | An exchange of unequal values; the premiums amount paid is smaller than the amount the insurer will pay in the event of a loss |
| Unilateral (Unique Characteristic) | Only on party is legally bound to do anything; the insured makes no binding promise, but the insurer is legally bound to pay the losses covered by the policy |
| Conditional (Unique Characteristic) | Certain conditions must be met for the contract to be executed; the insured must pay the premiums and provide proof of loss for the death benefit to be paid |
| Application | Part 1 - General Information Part 2 - Medical Information Part 3 - Agent's Report |
| Representations | Statements on the application that is true to the best of the applicant's knowledge; statements on an application are deemed to be representations |
When the first premium is collected at the time of application for a policy the effective date of coverage?
Usually, a receipt is issued when the initial premium deposit is collected. Generally, the date of the receipt would be considered the effective date of the policy.
What does initial premium payment mean?
Initial Premium — the amount paid at the inception of an insurance contract.
When the first premium is collected at the time of application for a policy the effective date of coverage is quizlet?
If the initial premium is not submitted with the application, the policy effective date is the date on which the policy is delivered, and the initial premium is paid. In this example, January 17th. How many months can a life insurance policy be backdated? A life insurance application can be backdated up to six months.
When an agent collects the initial premium from the applicant the agent should issue the applicant a?
When an agent collects the initial premium from the applicant, the agent should issue the applicant a? When collecting the initial premium, the agent should issue the applicant a premium receipt.