South Carolina Life Insurance Practice Exam

If a prospective insured receives a conditional receipt but dies before the policy is issued, what will the insurer do?

1. Pay the policy proceeds in full

2. Pay the policy proceeds only if it would have issued the policy

3. Refund all premiums paid

4. Issue a limited term policy

The correct answer is: Pay the policy proceeds only if it would have issued the policy

When a prospective insured receives a conditional receipt, it indicates that coverage is temporarily established, under certain conditions, until the insurance company formally issues the policy. The key aspect here is that the conditional receipt typically states that the insurer will only pay the policy proceeds if the applicant would have qualified for the policy based on underwriting criteria. In the event that the insured dies before the policy is issued, the insurer will evaluate whether the individual would have been accepted for the policy had it been formally evaluated. If the applicant met the underwriting requirements at the time the conditional receipt was issued, the insurer will pay the policy proceeds. However, if there were any disqualifying factors that would have prevented the issuance of the policy, the insurer is not obligated to pay the claim. This makes it critical for prospective insureds to understand that the conditional receipt serves as a temporary measure and the actual payment of benefits hinges on the underwriting decision that follows. Thus, the correct answer reflects the requirement of the insurer to confirm the insurability of the applicant before proceeding with any payout, accurately aligning with the policies surrounding conditional receipts.