Texas Life Agent Practice Exam

When does life insurance become effective?

1. Upon application submission

2. Upon the cashing of the initial premium

3. When the conditions of the conditional receipt are met

4. Immediately after the application is signed

The correct answer is: When the conditions of the conditional receipt are met

Life insurance typically becomes effective when the conditions of the conditional receipt are met. A conditional receipt is often issued when a prospective policyholder submits an application and pays the initial premium. This receipt serves as temporary coverage until the insurer completes its underwriting process. The accuracy of this answer hinges on the understanding that the receipt outlines specific conditions under which coverage will start before the policy is officially issued. For instance, the insurer may require that the applicant is in good health at the time of the application or that the information provided is accurate. If these conditions are satisfied, the insurance coverage begins as stipulated in the receipt, even if the final policy has not yet been issued. In contrast, simply submitting the application or signing it does not automatically create an insurance contract or provide coverage. The application's review process and the insurer's approval are essential for the policy to be effective. Additionally, while cashing the initial premium is a crucial step, it does not guarantee coverage unless the conditions of the conditional receipt are fulfilled. Thus, the effective date of life insurance is contingent upon these critically evaluated conditions being met.