Rhode Island Life Insurance Practice Exam

A $20,000 life insurance policy application is completed, however the producer does not collect the initial premium. At what point does the coverage go into effect?

1. When the policy is issued by the insurer

2. When the applicant receives the policy and pays the initial premium

3. Upon submission of the application

4. Immediately after the applicant signs the application

The correct answer is: When the applicant receives the policy and pays the initial premium

The coverage for a life insurance policy generally goes into effect when the applicant receives the policy and pays the initial premium. This requirement is based on the principle that insurance provides protection in exchange for payment. When the initial premium is paid and the applicant receives the policy, it signifies that the insurer has accepted the risk associated with that particular coverage. Collecting the initial premium is crucial because it demonstrates the applicant's commitment to the policy and allows the insurer to begin the coverage. In many cases, until the first premium is received, the policy is not officially active, even if the application is completed or the policy is issued. This means that simply submitting the application or signing it does not create an active insurance contract without the corresponding premium payment.