Texas Life Agent Practice Exam

When does coverage become effective after a producer delivers a life insurance policy and collects the premium?

1. Upon issuance of the policy

2. Immediately after the application is submitted

3. Upon delivery of the policy and collection of the premium

4. After the waiting period ends

The correct answer is: Upon delivery of the policy and collection of the premium

Coverage becomes effective upon the delivery of the policy and collection of the premium because this is the point at which the insurer and the insured formally enter into the contracts. Until the policy is delivered and the premium is paid, the insurance company has not accepted the risk, and therefore, the coverage does not begin. The delivery of the policy serves as a critical moment where the insurance company solidifies its offer, and the premium payment confirms the acceptance of the terms by the policyholder. This practice protects both parties; it ensures that the insured has reviewed the policy terms and agrees to them, and it secures the insurer's financial interest as the premium is necessary to initiate the coverage. The other responses don’t align with the standard practices governing life insurance. Simply issuing the policy, for instance, does not create an effective coverage status until the policy is delivered and the premium is received. Prior to the delivery or premium payment, the coverage cannot be guaranteed; therefore, it is incorrect to state that coverage starts immediately after the application is submitted or after a waiting period ends, as both of these scenarios do not meet the necessary conditions for coverage to be in effect.