Rhode Island Life Insurance Practice Exam

K applies for a life insurance policy and receives a receipt stating coverage begins immediately if approved. What type of receipt is this?

1. Binding receipt

2. Conditional receipt

3. Temporary receipt

4. Full premium receipt

The correct answer is: Conditional receipt

The correct answer is based on the distinction of how coverage is established when an individual applies for a life insurance policy. In this case, the receipt stating that coverage begins immediately upon approval indicates that K has received a conditional receipt. A conditional receipt implies that the insurance company agrees to provide coverage starting from the moment the application is submitted and received, provided the applicant meets the underwriting requirements and the coverage is ultimately approved. This type of receipt creates a temporary agreement where coverage is in effect while the insurer reviews K’s application. If the insurer decides not to approve the application after the review, the coverage would be voided and K would not be entitled to benefits. This highlights the nature of a conditional receipt as one that allows for immediate coverage that is contingent upon acceptance of the policy. The other options do not accurately describe the nature of the coverage being offered in this scenario. A binding receipt would imply that coverage is guaranteed regardless of underwriting approval, which is not the case here, while a temporary receipt does not specify immediate coverage upon approval. A full premium receipt typically signifies that a policy is in force after payment of premiums, which also does not apply in this context. Understanding the nuances of these different types of receipts is crucial for individuals navigating life insurance