If you apply for a life insurance policy, fill out your application truthfully and give the agent money for the premium, you receive a conditional receipt for the policy. Provided that you are eligible for the policy applied for, a conditional receipt extends coverage before the policy is issued.
The individual states set insurance rules. Some states vary but most of them consider the conditional receipt a legal agreement for an insurance company payment if you qualify on the date the agent writes it and have all required tests.
The conditional receipt guarantees coverage even if your health changes after you receive it but before you get a policy, according to most states' insurance laws. For an example, see the link to New York State Law found under References below.
Most companies won't allow an agent to collect premium or give a conditional receipt if the policy is larger than a specified amount. Often the amount is $250,000.
The conditional receipt protects the insured from companies failing to pay claims. In order to deny payment, the company must have notified the insured in writing that there is no coverage. See Hornaday vs. Sun Life Insurance Company under References below.
Conditional receipts outline the terms of coverage. If it says you must have a physical before coverage is effective and you die before the physical, there's no coverage.
A conditional receipt doesn't guarantee payment if you make a material misrepresentation on the policy and die. A material misrepresentation might include a lie about your state of health.
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