If a proposed insured signs the application and submits it with the first premium to the company, an offer to buy insurance has been made by the proposed insured.
That is, the proposed insured has made an offer to purchase a life insurance contract, and the insurance company has accepted that offer.
So far, we have assumed that the premium was submitted with the application. However, there are two other possibilities to consider regarding the effective date of the policy.
The first occurs when an application is submitted without the premium. In this case, the applicant has made no offer. The applicant has only extended an invitation to the company to make an offer.
The insurance company makes the offer when it issues a policy as applied for and delivers it to the applicant. Further, the offer is accepted when the applicant pays the premium, assuming any other conditions have been fulfilled. The date of payment of the premium becomes the effective date of the policy.
In situations where the initial premium does not accompany the completed application, most companies state in the application that the proposed insured must be in good health at the time of policy delivery before coverage becomes effective.
So, before accepting the initial premium and leaving the policy with the insured, the agent must obtain a signed statement of the prospective insureds continued good health. This statement and the initial premium are then transmitted to the company.
The final possibility occurs when the premium is submitted with the application payday loans in New York but no receipt is given. If this is the case, then the policys effective date is generally the date that the policy is issued and delivered.
Delivery, then, does not usually have to be accomplished by the manual transfer of the policy to the policyholder. Delivery accomplished by means other than a manual transfer is called constructive delivery.
If a policy is not, or cannot, be delivered, then the policy is not in effect, as policy delivery has not been accomplished.
When the applicant wants to examine the policy for a time before paying the initial premium, and the policy is left with the applicant for inspection, he or she should sign a receipt for the policy, referred to as an inspection receipt. This acknowledges that the policy is in the insureds possession for inspection purposes only and that the initial premium has not been paid and that the insurance is not in effect.
An applicant may ask the company to give the policy for which they are applying a date earlier than the application date. The reason for this backdating is usually to obtain a lower premium. Premium paid for life insurance depends, among other factors, on the insureds age. So, in order to obtain a lower insurance age, and, as a result a lower premium, backdating is used.
Agents Responsibilities Regarding Delivery
The agent should deliver the policy to the client as soon as possible after the policy is issued. This is especially important when no premium was submitted with the application, because the coverage will not become effective until the policy is delivered and the first premium paid during the continued good health of the proposed insured.
The agent also has a responsibility to explain the policys provisions, riders, and exclusions at the time of delivery of the policy.
Income Tax Benefits of Life Insurance
By building income tax benefits into life insurance, public policy encourages individuals to purchase life insurance and obtain income security in the event of death. Specific income tax benefits of life insurance include the following: