Getting a life insurance policy involves purchasing it, and getting coverage. Purchasing, or “paying for” a life insurance policy is different from establishing your coverage in case of death. This may surprise you, but you are not automatically “covered” the instant you apply for life insurance, as you might be with a homeowner’s policy. You may not even be covered if the insurance company deposits your check and sends you a receipt!
There are three specific requirements which must be met before you are covered by the life insurance policy.
- First, an application for coverage must be made;
- Second, the risk must be accepted by the carrier;
- Third, the money to pay for the insurance must be received by the carrier.
If any of these items are not completed, there is no coverage, and this process can take from 4 to 6 weeks to complete.
Application:
There are generally two ways to apply for life insurance. Send your application in without the initial payment, or send your application in WITH the initial payment.
In the first case, the carrier will have your application, and must underwrite, evaluate and accept the risk. When you risk has been accepted, you must send in your payment. At this point, the first 2 criteria have been met, and when your check is deposited, your coverage begins. As noted above, this takes between 4 to 6 weeks on average.
In the second case, you fill out an application and submit it to the insurance company with the initial premium. Once this is done you will receive what is known as a “conditional receipt”. This conditional receipt will state the proposed insured is “conditionally” covered in case of death based on satisfying 2 of the 3 needed requirements, but coverage will still not be in force. The carrier must still accept the risk. Once the carrier has completed their underwriting process and that acceptance occurs, you are covered from that point forward and the policy has been “purchased”. This “conditional receipt” process can sometimes speed the process by a week or two.
There are two reasons to apply using a “conditional receipt” – or sending your money in with your application.
1. You may get coverage sooner than you would if you had to wait to send your check in.
2. If you happened to die after receiving your conditional receipt but BEFORE the acceptance by the insurance carrier, your policy might still pay out. If the carrier had all the information to evaluate your risk and the risk would have been found to be acceptable had the proposed insured lived, a conditional receipt policy may pay out. It is important to point out that money can be taken at time of application only within the guidelines of the particular carrier’s conditional receipt. These guidelines are based mainly on the amount of coverage being applied for and this “conditional coverage” is generally not available for very large policies.
In conclusion, the length of time it takes to “purchase” a policy is not as important as when a policy becomes effective. When the conditional coverage option is not available, you can assume that there will be no coverage for 4 to 6 weeks. However, if the option for conditional coverage is available, there is no faster way to get coverage and you should always submit money with the application if you can. Be sure to discuss this with your agent to determine how best to get the coverage you need as soon as you can.
*The material provided in this article is for informational purposes only. We do not provide legal, tax or accounting advice. Please contact your own advisers for legal, tax and accounting advice.
