South Carolina Life Insurance Practice Exam

What is the primary purpose of a conditional receipt?

1. To provide immediate coverage

2. To guarantee the issue of the policy

3. To acknowledge the submission of an application

4. To stipulate temporary insurance until approval

The correct answer is: To stipulate temporary insurance until approval

The primary purpose of a conditional receipt is to stipulate temporary insurance until approval. When an applicant pays the initial premium at the time of application and receives a conditional receipt, this receipt provides coverage for a limited time, pending the underwriting process and the final decision on whether the policy will be issued. This means that if the applicant passes the underwriting process and the insurer approves the application, the coverage will be honored from the time of the receipt. This temporary coverage can be crucial for applicants who need immediate protection while waiting for the insurance company to complete its evaluation. However, it’s important to note that if the policy is ultimately denied, the coverage provided under the conditional receipt is voided, and any claims made during that period would not be paid. Therefore, understanding the role of the conditional receipt is essential for both applicants and agents in managing expectations about coverage as they await the final decision from the insurer.