When you apply for life insurance, you typically receive a "Conditional Premium Receipt" that says your coverage will begin on the latest of three dates: (1) the day you submit your application with a check for the first premium, (2) the date all required test results have been received, and (3) the date they receive any other information they may have requested.
It goes on to detail the conditions under which coverage will be effective . . . chief among them, you must be found to be a standard risk.
Some policies state that coverage will not be in effect before the policy is delivered to the owner, provided the insured also signs a new statement of good health.
So the true answer is: you have to read the policy to know for sure when coverage begins.
Posted: Mon May 17, 2010 04:05 pm Post Subject:
Max, you are correct that there are differences between policies. However, he can't get the answer by reading the policy. The reason is that when one has a "conditional premium receipt", they don't have a policy, thus they can't read something that they don't have.
There is both "conditional coverage" and "temporary coverage". With "conditional coverage", one is insured starting from the time that they have given a check and filled out the application and the Part 2 provided that they end up getting approved standard or better.
With "temporary coverage", one is insured from the same time, but this coverage only lasts until underwriting is complete. There is no requirement that they must be found to be a standard risk. In order for a policy to be delivered, they must still be healthy. Some companies give conditional coverage and some give temporary coverage. Some give both.
Temporary coverage is the best if one dies during underwriting, but would ultimately get turned down for the coverage.
Conditional coverage is the best if one's health changes during the underwriting process, but they don't die and they were healthy at the time of application.
Ex. Jim has some serious mental health issues that will cause him to ultimately get turned down for coverage. He is honest on the application. During underwriting, he drops dead of a heart attack. With temporary coverage, his beneficiaries would collect on the claim. With conditional coverage, they would not collect.
Ex. Jim is healthy. During underwriting, he has a heart attack. He does not die. With conditional coverage, he will be insured and his heart attack will have no impact on underwriting. With temporary insurance, the agent won't be able to deliver the policy because of the change of health status.
Posted: Mon May 17, 2010 05:45 pm Post Subject:
However, he can't get the answer by reading the policy. The reason is that when one has a "conditional premium receipt", they don't have a policy, thus they can't read something that they don't have.
OK, on this point, I think we're splitting hairs. Yes, they don't have the policy. Would they find something entirely different in the policy -- when they get it -- than in the conditional receipt? Better not. And the words of the conditional receipt are usually found in the application, which becomes a part of the policy. So they have it even when they don't have it. When they get the policy, they'll be able to read when coverage began. And they'll have at least 10 days to cancel their coverage and get a full refund, too.
With "temporary coverage", one is insured from the same time, but this coverage only lasts until underwriting is complete. There is no requirement that they must be found to be a standard risk. In order for a policy to be delivered, they must still be healthy. Some companies give conditional coverage and some give temporary coverage. Some give both.
Temporary coverage is the best if one dies during underwriting, but would ultimately get turned down for the coverage.
While nothing said above is untrue, "temporary insurance" is the same as a "BINDER". California law, and the laws of many other states, prohibits the use of binders in life insurance. Therefore, in each of those states, the conditional receipt is the language that governs any payment of proceeds before a policy is approved and issued.
So now that we are, I hope, on the same page . . .
The single biggest hazard for insureds under a life insurance application are the words an agent uses to describe when coverage begins. Those are not always the same as the ones in the receipt or in the contract, and they cannot be stapled to either. Some (many?) agents say things like, "You're covered as of today . . ." mostly to get the check from the client in order to get their commission check from the company in the next two weeks or so.
Clients often rely on the words of the agent as authoritative, when they are not.
Most of the time, however, the words of the conditional receipt are much more specific than (and often contradictory to) that. They clearly state that although coverage could begin on the date the application is signed if a check accompanies the application, they most often have other more limiting language as I indicated above: the date we receive results of any tests we require (which will not be "today" or "tonight"), or "the date we receive any other information we require" (such as an Attending Physician's Statement [APS]), which I've seen take up to 9 months to obtain. No coverage in all that time before the APS is in hand.
And then the three or four "conditions" under which coverage is obtained under the receipt: (1) must be found to be a standard risk, (2) must comply with any request for testing deemed necessary by the underwriter (3) the company must receive the results of the tests, (4) a check for the first month's premium must accompany the application.
If found to be a substandard risk, no coverage at all until the policy is not only issued, but accepted by the insured and any additional premium or reduction in benefit has been agreed to. If no tests are required, no other information is required, and if found to be a standard risk, then coverage would begin on the date the application is taken. But, in life insurance, since at least the 1990s, in the new era of HIV/AIDS, most insurers require at least a saliva test for HIV, so there would be no coverage until that result is received, even if the agent collects the saliva sample at the time, as I have.
Additionally, despite the amount of insurance actually applied for, most conditional receipts limit coverage to $500,000 or possibly $1,000,000. Again, state laws define the amount of such interim coverage prior to policy issue.
Ex. Jim is healthy. During underwriting, he has a heart attack. He does not die. With conditional coverage, he will be insured and his heart attack will have no impact on underwriting. With temporary insurance, the agent won't be able to deliver the policy because of the change of health status.
Depends on whether the Conditional Receipt is a conditional "premium" or conditional "insurability" receipt. Your examples combine elements of both correctness and incorrectness.
A conditional insurability receipt requires the insured to sign a statement of good health upon delivery of the contract. If their health status has materially changed (i.e., a heart attack) between the time of application and the time of policy issue, underwriting must begin all over again, probably resulting in a decline or a substandard rating. Sign the statement of good health in a different condition than at the time of application, and if death occurs in the next two years before the policy reaches incontestability, and you can bet the insurer will void the contract on the basis of material misrepresentation on the day of policy delivery.
But if the policy is issued under a conditional premium receipt, insurability is based on the condition of the insured at the time of application (subject only to whatever subsequent testing/information is required). If on the basis of those elements, the person is determined to be a standard risk, coverage is issued and can be delivered to the insured/owner, even in their hospital bed.
In your example of the "serious mental health issues", if that would prevent a standard rating, there will not be a death claim paid under the conditional premium receipt or the conditional insurability receipt, because both require being rated a standard risk. If the state is one of the few that allows a binder for life insurance, then a death claim would be payable if the words "temporary insurance" are found in the receipt -- up to the day before underwriting determines the insured is a less than standard risk or declines the risk altogether.
There was a case brought against Primerica Life Insurance Company in Illinois in the late 1990s (I'm sure it's not the only one of its kind, just the only "recent" one I am aware of). Seems the agent told the husband and wife, "You're covered as of tonight." Then the underwriter requested a blood test for the wife, and the wife was reluctant, eventually agreeing to have the test done "in a couple of weeks, after we get back from vacation."
Big mistake! While driving in Mexico, the husband lost control of the vehicle, which rolled over, killing the wife. Back in the US, the husband files for the death benefit. Claim denied. No blood test taken or results received.
Goes to court. Plaintiff lays out their cause of action: The agent told the client there was coverage "as of tonight," words relied on by the applicant ("apparent authority"). Insurance company requests summary judgment -- no cause of action: conditional receipt requires that the company receive the test results it requires. Company required a blood test, wife did not have the test, no results to be received, therefore no insurance.
Summary judgment for the defendant granted. In the words of the judge, the conditional receipt was "unambiguous," it specified that coverage would begin on the latest of three possible dates: (1) date of application, (2) date test results are received, (3) date all other requested information is received.
Would the wife have been found to be a standard risk? Perhaps. But we'll never know. Had she given the tube of blood, and been insurable as standard, the company would have paid the claim without flinching.
As I caution my students, agents must not say anything that isn't found in the policy or in the conditional receipt. Don't say you're covered as of today, tonight, or tomorrow, because it's not your call, and it probably doesn't say that in the conditional receipt.
When a client asks, "Why do I have to give you/them a check tonight?" just tell them, "You want your coverage to begin as soon as possible, don't you?" The answer should be, "Yes." If that's true, then you can say, "Until the insurance company gets paid, you would have no insurance. When you send a check with the application, you will be covered as soon as possible. Let me show you the conditional receipt again." And then read it with them again so that they understand what it says.
When the air is clear, and there is agreement all around, there will be no complaints, applicants will have the tests done ASAP, because they want their coverage to begin as soon as possible.
Posted: Mon May 17, 2010 06:27 pm Post Subject:
Max, I'm looking at a temporary life insurance receipt for the state of California. In big letters it says, "Temporary Insurance Reciept" So, I guess that you are not on the same page as California law.
I was talking about a conditional premium receipt. In my examples, I'm assuming that a premium check was paid.
Posted: Mon May 17, 2010 08:34 pm Post Subject:
Oh . . . I'm not on the wrong page. Please see the following excerpt, from CIC 382.5, which states (emphasis added):
382.5. A binder which is issued in accordance with this section shall be deemed an insurance policy for the purpose of proving that the insured has the insurance coverage specified in the binder.
(a) As used in this section, "binder" means a writing (1) which includes the name and address of the insured and any additional named insureds, mortgagees, or lienholders, a description of the property insured, if applicable, a description of the nature and amount of
coverage and any special exclusions not contained in a standard policy, the identity of the insurer and the agent executing the binder, the effective date of coverage, the binder number or the policy number where applicable to a policy extension, and (2) which temporarily obligates the insurer to provide that insurance coverage pending issuance of the insurance policy. For purposes of this section, "binder" does not include, and this section does not apply to, any writing that conditionally or unconditionally obligates an insurer to provide (1) life or disability insurance or (2) insurance in the amount of one million dollars ($1,000,000) or more.
I rest on those words, the common understanding being binders are prohibited in life and disability insurance. An insurance company is free to violate California state law until it is caught doing so -- and then it suffers the consequences.
What do you think California law says about binders and life insurance?
Why not reproduce all of the relevant words of the "temporary insurance receipt" you are looking at, which no one else can see, for evaluation of what it says. There are many ways to disguise by name what is otherwise merely a "Conditional Receipt," because a conditional receipt does promise coverage before a policy is issued, if all the conditions are satisfied.
And, of course, there is absolutely no disagreement with the understanding that in your examples above a check was paid with the application. We don't give anyone a receipt for a COD app, because there will never be any coverage under that scenario. I just think you inadvertently mixed together some aspects of the two different types of receipts that could be used in your examples. Perhaps others, like InsTeacher, might care to jump in and offer their thoughts, too.
Posted: Mon May 17, 2010 08:38 pm Post Subject:
if you get life insurance wen will your courage begin
OMG! I just realized we've been answering the wrong question! Courage begins just moments before the paramed sticks the needle in your arm for the blood draw.
A close friend of mine once proudly announced to all of us in the office that he had to go the client's home and hold his hand while the nurse drew the blood . . . that it was the only way he would agree to it.
Looking at him like he was insane, I said, "So, Jim, what if he asked you to hold a different part of his anatomy instead?"
:oops: :P :roll:
Posted: Mon May 17, 2010 08:52 pm Post Subject:
Max, you are showing CIC section 382.5. However, this section specifically states that this section of the CIC does not relate to life and disability insurance.
You are interpreting that to mean that life and DI coverage can't be bound. The section does not say that. It simply says that this section isn't about life and disability coverage.
Take a look at a Mass Mutual temporary receipt for the state of California. You'll see that I'm correct.
I have no idea what California law says about binders and life insurance. However, since a company as large as MassMutual has them in the state of California and the state had to approve their policies, I'm pretty certain that you are wrong and Mass Mutual and the California insurance department is correct.
Posted: Tue May 18, 2010 02:06 pm Post Subject:
I have no idea what California law says about binders and life insurance
Then why are you making the assertions that you do?
However, this section specifically states that this section of the CIC does not relate to life and disability insurance.
You have misread the Code. It says, "For purposes of this section, "binder" does not include, and this section does not apply to, any writing that conditionally or unconditionally obligates an insurer to provide (1) life or disability insurance . . . ."
CIC 382.5 "defines" what a binder is. When it states that the section does not include life or disabiltiy insurance, it means "there is no definition of binder" that can be applied to these forms of insurance -- that one cannot issue a binder for any form of life or disability insurance.
I am not a Mass Mutual agent, and I have no access to their forms or materials. So, please, transcribe the relevant sections of their "Temporary Insurance Receipt" that illustrates your point. Until it's in print, where we can all read it, nothing means nothing.
However, since a company as large as Mass Mutual has them in the state of California and the state had to approve their policies
Approving policies does not mean that the CDI or any other state's regulator approves every provision or conditional receipt -- the don't get involved in those details unless specified by the Code, as in Medicare Supplement, where the Code states that all applications for MedSupp must include a question designed to determine if a person already has a MedSupp policy, since a person is not supposed to need or have more than one.
It is not the job of a regulator, however, to interpret policy provisions, only to make sure that any required provision appears in the contract. Interpretation of policy provisions is a matter for the courts to decide according to applicable law.
Mass Mutual may very well have language in their receipt that would seem to obligate them in a way that contradicts California law. If that's true, they could go to court and claim, "We're sorry, but we're actually not allowed to do this under California law, so here's your money back." And it would be upheld in court. That's not to say they would act that way, but legally they could.
Again, all of this speculation is just that, speculation, until we see it in print, it's just a matter of he said-she said. I've laid the relevant California Insurance Code section on the table, which you choose to misinterpret. Give me an opportunity to do the same with your Mass Mutual receipt.
(In all honesty, I've had some very heated "discussions" with agents over the language of conditional receipts. We read the words together, and one, a "Sr National Marketing Director" for a company, actually said, after we agreed what the words were, "Oh, that doesn't mean anything. The state just makes the company say it that way." Really? Bet me! Try and make the company live by the words of an agent -- even a Sr Nat'l Marketing Director -- when one of those paragraphs they put in the contract says, "No agent has the authority to . . .")
Mass Mutual is a fine company. The agency I worked for a few years ago did some business with them and they paid death claims quickly and without hassle. We could obtain in-force illustrations on UL policies within a matter of a day. So I have nothing but good things to say about them. But I don't have access to their forms.
Posted: Wed May 19, 2010 12:40 am Post Subject:
Max,
I'm making assertions because I can't find any section of the CIC that talks about binders on life insurance policies. At the same time, I've seen plenty of California applications that have them. Since I can't find anything saying that they aren't allowed and companies are using them in the state of CA, the logical conclusion is that they are allowed. There is also no logical reason for CA to not allow them. The companies want them. They help consumers. Why would CA not allow them?
I am also not a Mass Mutual agent. If you are a broker, simply call a Mass Mutual office and they can e-mail it to you. I'll take the time to do it for you, but only if you'll believe that I'm correct if it says what I say it says. Max, you should notice by now, that when we have disagreements, I'm always the one who is correct.
The funny thing about that is that you probably have more knowledge than I do. The difference is that I only post when I know that I'm correct.
As for CIC 382.5, when it says, "this section does not apply to", believe them. You are putting in your own interpretation that simply isn't there. If I'm not mistaken, the purpose of this section has to do with P&C insurance and the fact that legally all parties must accept a binder as actual coverage as long as the object being covered is being insured for less than $1,000,000.
My guess for the reasoning why life insurance isn't included is because if, for example, a bank is requiring life insurance in order to give a loan, they don't want a temporary receipt to force the bank to give a loan before the policy is approved.
By the way, you are claiming that "temporary receipt" is the same as "binder" in California law, and I don't know if this is technically correct.
Posted: Wed May 19, 2010 04:58 am Post Subject:
Max, I'm looking at a temporary life insurance receipt for the state of California. In big letters it says, "Temporary Insurance Reciept"
Take a look at a Mass Mutual temporary receipt for the state of California. You'll see that I'm correct.
I've politely asked you to transcribe what you apparently have in your hands. What's so hard about that? Fingers sore? I'll trust you to be accurate. (A concept called "utmost good faith"). You are undoubtedly correct that the document you are looking at is titled "Temporary Insurance Receipt." But if you would be so kind as to type the words that specifically address the topic of when "temporary insurance" becomes effective, we'll all see that your "Temporary Insurance Receipt" is NOT a binder, but a conditional receipt. It is mildly suggestive, perhaps, of a binder, but THERE ARE NO BINDERS EVER ISSUED IN LIFE OR DISABILITY INSURANCE!!
I'm making assertions because I can't find any section of the CIC that talks about binders on life insurance policies.
Well here's something to chew on . . . maybe you can't find anything on binders in life insurance because they don't exist. Since they don't exist, nothing needs to be said about them. That's why CIC 382.5 says the section doesn't apply to life or disability insurance. Stop reading things into the Code that don't exist.
The funny thing about that is that you probably have more knowledge than I do. The difference is that I only post when I know that I'm correct.
Please . . . it's not about who has more knowledge. It's about who knows what is correct. On this point, you do not.
I hate to do it this way, but I'm going to prove, once and for all, that it is YOU, not I, who is 100% wrong about binders and life insurance. Unless you also disagree that the American College (the organization that grants CFP designations) knows what it's talking about.
From the textbook Fundamentals of Insurance for Financial Planning, written by Beam, Poole, Bicklehaupt, and Crowe. My copy is (c) 2003 Second Printing. When you look in the index, on page 784, column 2, line 6: "Binder, of insurers, 83, 96-97".
The discussion actually begins on page 82, paragraph 3, speaking broadly of agent authority (express, implied, apparent):
-----"Life insurance companies customarily limit the authority to issue or modify life insurance contracts to salaried company officers. Life insurance agents, even those called general agents, are thus limited agents. Generally speaking, life insurance agents are authorized to solicit, receive, and forward applications for the contracts written by their companies. Agents are authorized to receive the first premium due on applications, but not subsequent premiums. The life insurance agent's authority is also limited in the ability to accept business or bind the coverage. The life insurer issues the contract after receiving the written, signed application and, often, a medical examination report. The agent may not cover the policyowner immediately, nor may contract modifications be made later without the insurance company's approval. <cont>
-----"Agents appointed to represent property and liability insurers are often granted the powers of a general agent. The limitations on their authority are set forth in the agency agreement. General agents may bind their companies for a client's coverage in certain cases. This
is done by an oral or written binder, which is temporary evidence of coverage until the full policy is issued by the insurance company."
Please don't tell us that when the authors write
The life insurance agent's authority is also limited in the ability to accept business or bind the coverage.
that it means life agents CAN write binders. Because they are not saying that. They go on to say, explicitly,
The agent may not cover the policyowner immediately
Let's return to the Index, page 785, column 2, 6th line from the bottom: "Conditional receipt, 147".
Beginning on page 146, last paragraph, continuing onto page 147:
-----"Before a contract is effective, acceptance of the offer is necessary. As has been noted earlier, in property and liability insurance, the agent often has the authority to bind, or accept, the offer even without receiving any payment from the applicant. The protection may commence immediately, if desired, based entirely on the oral request of the applicant and the oral acceptance by the agent. <after>
-----"In life insurance, the method and timing of legal acceptance are different. The written application and the first premium are usually submitted by the applicant as the offer to the insurer through the agent, who issues a conditional receipt. Acceptance is held by most courts to occur when the applicant meets the normal underwriting standards of the insurer, including a medical examination if required. Then coverage becomes effective as of the time of the application and premium payment. . . ."
I added the emphasis to the word "then" because it makes it clear, to me (and I hope to you, too), that there is no insurance in force at the time the receipt was first given to the applicant. I have said that repeatedly.
Please, admit, this clearly demonstrates there are no binders in life insurance.
My guess for the reasoning why life insurance isn't included [in CIC 382.5] is because if, for example, a bank is requiring life insurance in order to give a loan, they don't want a temporary receipt to force the bank to give a loan before the policy is approved.
Well, you're right, the bank won't loan money until the life insurance is issued, if a collateral assignment is going to be the basis of a loan. But the rest of your "reasoning" is wrong. As Foghorn Leghorn might say, "They ain't no binders in life insurance, son, that's why they don't talk about 'em."
Finally . . .
you are claiming that "temporary receipt" is the same as "binder" in California law
Not so. Reread what I wrote:
"temporary insurance" is the same as a "BINDER".
A conditional receipt, even if labeled "temporary insurance RECEIPT", is not the same as "temporary insurance" as understood by definition of BINDER. A typical conditional receipt says, as I've been clear on, "insurance will be in effect, before a policy is issued, on the latest of (usually three possibilities) . . . if the insured is, or would have been, found to be a standard risk."
So, one last time. You apparently have (or had) it in your hands. Please type out the words of the Mass Mutual receipt you claim to be able to look at and tell us exactly what it says. If I'm wrong, I'll be the first one to say so.
Posted: Mon May 17, 2010 08:10 am Post Subject:
When you apply for life insurance, you typically receive a "Conditional Premium Receipt" that says your coverage will begin on the latest of three dates: (1) the day you submit your application with a check for the first premium, (2) the date all required test results have been received, and (3) the date they receive any other information they may have requested.
It goes on to detail the conditions under which coverage will be effective . . . chief among them, you must be found to be a standard risk.
Some policies state that coverage will not be in effect before the policy is delivered to the owner, provided the insured also signs a new statement of good health.
So the true answer is: you have to read the policy to know for sure when coverage begins.
Posted: Mon May 17, 2010 04:05 pm Post Subject:
Max, you are correct that there are differences between policies. However, he can't get the answer by reading the policy. The reason is that when one has a "conditional premium receipt", they don't have a policy, thus they can't read something that they don't have.
There is both "conditional coverage" and "temporary coverage". With "conditional coverage", one is insured starting from the time that they have given a check and filled out the application and the Part 2 provided that they end up getting approved standard or better.
With "temporary coverage", one is insured from the same time, but this coverage only lasts until underwriting is complete. There is no requirement that they must be found to be a standard risk. In order for a policy to be delivered, they must still be healthy. Some companies give conditional coverage and some give temporary coverage. Some give both.
Temporary coverage is the best if one dies during underwriting, but would ultimately get turned down for the coverage.
Conditional coverage is the best if one's health changes during the underwriting process, but they don't die and they were healthy at the time of application.
Ex. Jim has some serious mental health issues that will cause him to ultimately get turned down for coverage. He is honest on the application. During underwriting, he drops dead of a heart attack. With temporary coverage, his beneficiaries would collect on the claim. With conditional coverage, they would not collect.
Ex. Jim is healthy. During underwriting, he has a heart attack. He does not die. With conditional coverage, he will be insured and his heart attack will have no impact on underwriting. With temporary insurance, the agent won't be able to deliver the policy because of the change of health status.
Posted: Mon May 17, 2010 05:45 pm Post Subject:
However, he can't get the answer by reading the policy. The reason is that when one has a "conditional premium receipt", they don't have a policy, thus they can't read something that they don't have.
OK, on this point, I think we're splitting hairs. Yes, they don't have the policy. Would they find something entirely different in the policy -- when they get it -- than in the conditional receipt? Better not. And the words of the conditional receipt are usually found in the application, which becomes a part of the policy. So they have it even when they don't have it. When they get the policy, they'll be able to read when coverage began. And they'll have at least 10 days to cancel their coverage and get a full refund, too.
With "temporary coverage", one is insured from the same time, but this coverage only lasts until underwriting is complete. There is no requirement that they must be found to be a standard risk. In order for a policy to be delivered, they must still be healthy. Some companies give conditional coverage and some give temporary coverage. Some give both.
Temporary coverage is the best if one dies during underwriting, but would ultimately get turned down for the coverage.
While nothing said above is untrue, "temporary insurance" is the same as a "BINDER". California law, and the laws of many other states, prohibits the use of binders in life insurance. Therefore, in each of those states, the conditional receipt is the language that governs any payment of proceeds before a policy is approved and issued.
So now that we are, I hope, on the same page . . .
The single biggest hazard for insureds under a life insurance application are the words an agent uses to describe when coverage begins. Those are not always the same as the ones in the receipt or in the contract, and they cannot be stapled to either. Some (many?) agents say things like, "You're covered as of today . . ." mostly to get the check from the client in order to get their commission check from the company in the next two weeks or so.
Clients often rely on the words of the agent as authoritative, when they are not.
Most of the time, however, the words of the conditional receipt are much more specific than (and often contradictory to) that. They clearly state that although coverage could begin on the date the application is signed if a check accompanies the application, they most often have other more limiting language as I indicated above: the date we receive results of any tests we require (which will not be "today" or "tonight"), or "the date we receive any other information we require" (such as an Attending Physician's Statement [APS]), which I've seen take up to 9 months to obtain. No coverage in all that time before the APS is in hand.
And then the three or four "conditions" under which coverage is obtained under the receipt: (1) must be found to be a standard risk, (2) must comply with any request for testing deemed necessary by the underwriter (3) the company must receive the results of the tests, (4) a check for the first month's premium must accompany the application.
If found to be a substandard risk, no coverage at all until the policy is not only issued, but accepted by the insured and any additional premium or reduction in benefit has been agreed to. If no tests are required, no other information is required, and if found to be a standard risk, then coverage would begin on the date the application is taken. But, in life insurance, since at least the 1990s, in the new era of HIV/AIDS, most insurers require at least a saliva test for HIV, so there would be no coverage until that result is received, even if the agent collects the saliva sample at the time, as I have.
Additionally, despite the amount of insurance actually applied for, most conditional receipts limit coverage to $500,000 or possibly $1,000,000. Again, state laws define the amount of such interim coverage prior to policy issue.
Ex. Jim is healthy. During underwriting, he has a heart attack. He does not die. With conditional coverage, he will be insured and his heart attack will have no impact on underwriting. With temporary insurance, the agent won't be able to deliver the policy because of the change of health status.
Depends on whether the Conditional Receipt is a conditional "premium" or conditional "insurability" receipt. Your examples combine elements of both correctness and incorrectness.
A conditional insurability receipt requires the insured to sign a statement of good health upon delivery of the contract. If their health status has materially changed (i.e., a heart attack) between the time of application and the time of policy issue, underwriting must begin all over again, probably resulting in a decline or a substandard rating. Sign the statement of good health in a different condition than at the time of application, and if death occurs in the next two years before the policy reaches incontestability, and you can bet the insurer will void the contract on the basis of material misrepresentation on the day of policy delivery.
But if the policy is issued under a conditional premium receipt, insurability is based on the condition of the insured at the time of application (subject only to whatever subsequent testing/information is required). If on the basis of those elements, the person is determined to be a standard risk, coverage is issued and can be delivered to the insured/owner, even in their hospital bed.
In your example of the "serious mental health issues", if that would prevent a standard rating, there will not be a death claim paid under the conditional premium receipt or the conditional insurability receipt, because both require being rated a standard risk. If the state is one of the few that allows a binder for life insurance, then a death claim would be payable if the words "temporary insurance" are found in the receipt -- up to the day before underwriting determines the insured is a less than standard risk or declines the risk altogether.
There was a case brought against Primerica Life Insurance Company in Illinois in the late 1990s (I'm sure it's not the only one of its kind, just the only "recent" one I am aware of). Seems the agent told the husband and wife, "You're covered as of tonight." Then the underwriter requested a blood test for the wife, and the wife was reluctant, eventually agreeing to have the test done "in a couple of weeks, after we get back from vacation."
Big mistake! While driving in Mexico, the husband lost control of the vehicle, which rolled over, killing the wife. Back in the US, the husband files for the death benefit. Claim denied. No blood test taken or results received.
Goes to court. Plaintiff lays out their cause of action: The agent told the client there was coverage "as of tonight," words relied on by the applicant ("apparent authority"). Insurance company requests summary judgment -- no cause of action: conditional receipt requires that the company receive the test results it requires. Company required a blood test, wife did not have the test, no results to be received, therefore no insurance.
Summary judgment for the defendant granted. In the words of the judge, the conditional receipt was "unambiguous," it specified that coverage would begin on the latest of three possible dates: (1) date of application, (2) date test results are received, (3) date all other requested information is received.
Would the wife have been found to be a standard risk? Perhaps. But we'll never know. Had she given the tube of blood, and been insurable as standard, the company would have paid the claim without flinching.
As I caution my students, agents must not say anything that isn't found in the policy or in the conditional receipt. Don't say you're covered as of today, tonight, or tomorrow, because it's not your call, and it probably doesn't say that in the conditional receipt.
When a client asks, "Why do I have to give you/them a check tonight?" just tell them, "You want your coverage to begin as soon as possible, don't you?" The answer should be, "Yes." If that's true, then you can say, "Until the insurance company gets paid, you would have no insurance. When you send a check with the application, you will be covered as soon as possible. Let me show you the conditional receipt again." And then read it with them again so that they understand what it says.
When the air is clear, and there is agreement all around, there will be no complaints, applicants will have the tests done ASAP, because they want their coverage to begin as soon as possible.
Posted: Mon May 17, 2010 06:27 pm Post Subject:
Max, I'm looking at a temporary life insurance receipt for the state of California. In big letters it says, "Temporary Insurance Reciept" So, I guess that you are not on the same page as California law.
I was talking about a conditional premium receipt. In my examples, I'm assuming that a premium check was paid.
Posted: Mon May 17, 2010 08:34 pm Post Subject:
Oh . . . I'm not on the wrong page. Please see the following excerpt, from CIC 382.5, which states (emphasis added):
382.5. A binder which is issued in accordance with this section shall be deemed an insurance policy for the purpose of proving that the insured has the insurance coverage specified in the binder.
(a) As used in this section, "binder" means a writing (1) which includes the name and address of the insured and any additional named insureds, mortgagees, or lienholders, a description of the property insured, if applicable, a description of the nature and amount of
coverage and any special exclusions not contained in a standard policy, the identity of the insurer and the agent executing the binder, the effective date of coverage, the binder number or the policy number where applicable to a policy extension, and (2) which temporarily obligates the insurer to provide that insurance coverage pending issuance of the insurance policy. For purposes of this section, "binder" does not include, and this section does not apply to, any writing that conditionally or unconditionally obligates an insurer to provide (1) life or disability insurance or (2) insurance in the amount of one million dollars ($1,000,000) or more.
I rest on those words, the common understanding being binders are prohibited in life and disability insurance. An insurance company is free to violate California state law until it is caught doing so -- and then it suffers the consequences.
What do you think California law says about binders and life insurance?
Why not reproduce all of the relevant words of the "temporary insurance receipt" you are looking at, which no one else can see, for evaluation of what it says. There are many ways to disguise by name what is otherwise merely a "Conditional Receipt," because a conditional receipt does promise coverage before a policy is issued, if all the conditions are satisfied.
And, of course, there is absolutely no disagreement with the understanding that in your examples above a check was paid with the application. We don't give anyone a receipt for a COD app, because there will never be any coverage under that scenario. I just think you inadvertently mixed together some aspects of the two different types of receipts that could be used in your examples. Perhaps others, like InsTeacher, might care to jump in and offer their thoughts, too.
Posted: Mon May 17, 2010 08:38 pm Post Subject:
if you get life insurance wen will your courage begin
OMG! I just realized we've been answering the wrong question! Courage begins just moments before the paramed sticks the needle in your arm for the blood draw.
A close friend of mine once proudly announced to all of us in the office that he had to go the client's home and hold his hand while the nurse drew the blood . . . that it was the only way he would agree to it.
Looking at him like he was insane, I said, "So, Jim, what if he asked you to hold a different part of his anatomy instead?"
:oops: :P :roll:
Posted: Mon May 17, 2010 08:52 pm Post Subject:
Max, you are showing CIC section 382.5. However, this section specifically states that this section of the CIC does not relate to life and disability insurance.
You are interpreting that to mean that life and DI coverage can't be bound. The section does not say that. It simply says that this section isn't about life and disability coverage.
Take a look at a Mass Mutual temporary receipt for the state of California. You'll see that I'm correct.
I have no idea what California law says about binders and life insurance. However, since a company as large as MassMutual has them in the state of California and the state had to approve their policies, I'm pretty certain that you are wrong and Mass Mutual and the California insurance department is correct.
Posted: Tue May 18, 2010 02:06 pm Post Subject:
I have no idea what California law says about binders and life insurance
Then why are you making the assertions that you do?
However, this section specifically states that this section of the CIC does not relate to life and disability insurance.
You have misread the Code. It says, "For purposes of this section, "binder" does not include, and this section does not apply to, any writing that conditionally or unconditionally obligates an insurer to provide (1) life or disability insurance . . . ."
CIC 382.5 "defines" what a binder is. When it states that the section does not include life or disabiltiy insurance, it means "there is no definition of binder" that can be applied to these forms of insurance -- that one cannot issue a binder for any form of life or disability insurance.
I am not a Mass Mutual agent, and I have no access to their forms or materials. So, please, transcribe the relevant sections of their "Temporary Insurance Receipt" that illustrates your point. Until it's in print, where we can all read it, nothing means nothing.
However, since a company as large as Mass Mutual has them in the state of California and the state had to approve their policies
Approving policies does not mean that the CDI or any other state's regulator approves every provision or conditional receipt -- the don't get involved in those details unless specified by the Code, as in Medicare Supplement, where the Code states that all applications for MedSupp must include a question designed to determine if a person already has a MedSupp policy, since a person is not supposed to need or have more than one.
It is not the job of a regulator, however, to interpret policy provisions, only to make sure that any required provision appears in the contract. Interpretation of policy provisions is a matter for the courts to decide according to applicable law.
Mass Mutual may very well have language in their receipt that would seem to obligate them in a way that contradicts California law. If that's true, they could go to court and claim, "We're sorry, but we're actually not allowed to do this under California law, so here's your money back." And it would be upheld in court. That's not to say they would act that way, but legally they could.
Again, all of this speculation is just that, speculation, until we see it in print, it's just a matter of he said-she said. I've laid the relevant California Insurance Code section on the table, which you choose to misinterpret. Give me an opportunity to do the same with your Mass Mutual receipt.
(In all honesty, I've had some very heated "discussions" with agents over the language of conditional receipts. We read the words together, and one, a "Sr National Marketing Director" for a company, actually said, after we agreed what the words were, "Oh, that doesn't mean anything. The state just makes the company say it that way." Really? Bet me! Try and make the company live by the words of an agent -- even a Sr Nat'l Marketing Director -- when one of those paragraphs they put in the contract says, "No agent has the authority to . . .")
Mass Mutual is a fine company. The agency I worked for a few years ago did some business with them and they paid death claims quickly and without hassle. We could obtain in-force illustrations on UL policies within a matter of a day. So I have nothing but good things to say about them. But I don't have access to their forms.
Posted: Wed May 19, 2010 12:40 am Post Subject:
Max,
I'm making assertions because I can't find any section of the CIC that talks about binders on life insurance policies. At the same time, I've seen plenty of California applications that have them. Since I can't find anything saying that they aren't allowed and companies are using them in the state of CA, the logical conclusion is that they are allowed. There is also no logical reason for CA to not allow them. The companies want them. They help consumers. Why would CA not allow them?
I am also not a Mass Mutual agent. If you are a broker, simply call a Mass Mutual office and they can e-mail it to you. I'll take the time to do it for you, but only if you'll believe that I'm correct if it says what I say it says. Max, you should notice by now, that when we have disagreements, I'm always the one who is correct.
The funny thing about that is that you probably have more knowledge than I do. The difference is that I only post when I know that I'm correct.
As for CIC 382.5, when it says, "this section does not apply to", believe them. You are putting in your own interpretation that simply isn't there. If I'm not mistaken, the purpose of this section has to do with P&C insurance and the fact that legally all parties must accept a binder as actual coverage as long as the object being covered is being insured for less than $1,000,000.
My guess for the reasoning why life insurance isn't included is because if, for example, a bank is requiring life insurance in order to give a loan, they don't want a temporary receipt to force the bank to give a loan before the policy is approved.
By the way, you are claiming that "temporary receipt" is the same as "binder" in California law, and I don't know if this is technically correct.
Posted: Wed May 19, 2010 04:58 am Post Subject:
Max, I'm looking at a temporary life insurance receipt for the state of California. In big letters it says, "Temporary Insurance Reciept"
Take a look at a Mass Mutual temporary receipt for the state of California. You'll see that I'm correct.
I've politely asked you to transcribe what you apparently have in your hands. What's so hard about that? Fingers sore? I'll trust you to be accurate. (A concept called "utmost good faith"). You are undoubtedly correct that the document you are looking at is titled "Temporary Insurance Receipt." But if you would be so kind as to type the words that specifically address the topic of when "temporary insurance" becomes effective, we'll all see that your "Temporary Insurance Receipt" is NOT a binder, but a conditional receipt. It is mildly suggestive, perhaps, of a binder, but THERE ARE NO BINDERS EVER ISSUED IN LIFE OR DISABILITY INSURANCE!!
I'm making assertions because I can't find any section of the CIC that talks about binders on life insurance policies.
Well here's something to chew on . . . maybe you can't find anything on binders in life insurance because they don't exist. Since they don't exist, nothing needs to be said about them. That's why CIC 382.5 says the section doesn't apply to life or disability insurance. Stop reading things into the Code that don't exist.
The funny thing about that is that you probably have more knowledge than I do. The difference is that I only post when I know that I'm correct.
Please . . . it's not about who has more knowledge. It's about who knows what is correct. On this point, you do not.
I hate to do it this way, but I'm going to prove, once and for all, that it is YOU, not I, who is 100% wrong about binders and life insurance. Unless you also disagree that the American College (the organization that grants CFP designations) knows what it's talking about.
From the textbook Fundamentals of Insurance for Financial Planning, written by Beam, Poole, Bicklehaupt, and Crowe. My copy is (c) 2003 Second Printing. When you look in the index, on page 784, column 2, line 6: "Binder, of insurers, 83, 96-97".
The discussion actually begins on page 82, paragraph 3, speaking broadly of agent authority (express, implied, apparent):
-----"Life insurance companies customarily limit the authority to issue or modify life insurance contracts to salaried company officers. Life insurance agents, even those called general agents, are thus limited agents. Generally speaking, life insurance agents are authorized to solicit, receive, and forward applications for the contracts written by their companies. Agents are authorized to receive the first premium due on applications, but not subsequent premiums. The life insurance agent's authority is also limited in the ability to accept business or bind the coverage. The life insurer issues the contract after receiving the written, signed application and, often, a medical examination report. The agent may not cover the policyowner immediately, nor may contract modifications be made later without the insurance company's approval. <cont>
-----"Agents appointed to represent property and liability insurers are often granted the powers of a general agent. The limitations on their authority are set forth in the agency agreement. General agents may bind their companies for a client's coverage in certain cases. This
is done by an oral or written binder, which is temporary evidence of coverage until the full policy is issued by the insurance company."
Please don't tell us that when the authors write
The life insurance agent's authority is also limited in the ability to accept business or bind the coverage.
that it means life agents CAN write binders. Because they are not saying that. They go on to say, explicitly,
The agent may not cover the policyowner immediately
Let's return to the Index, page 785, column 2, 6th line from the bottom: "Conditional receipt, 147".
Beginning on page 146, last paragraph, continuing onto page 147:
-----"Before a contract is effective, acceptance of the offer is necessary. As has been noted earlier, in property and liability insurance, the agent often has the authority to bind, or accept, the offer even without receiving any payment from the applicant. The protection may commence immediately, if desired, based entirely on the oral request of the applicant and the oral acceptance by the agent. <after>
-----"In life insurance, the method and timing of legal acceptance are different. The written application and the first premium are usually submitted by the applicant as the offer to the insurer through the agent, who issues a conditional receipt. Acceptance is held by most courts to occur when the applicant meets the normal underwriting standards of the insurer, including a medical examination if required. Then coverage becomes effective as of the time of the application and premium payment. . . ."
I added the emphasis to the word "then" because it makes it clear, to me (and I hope to you, too), that there is no insurance in force at the time the receipt was first given to the applicant. I have said that repeatedly.
Please, admit, this clearly demonstrates there are no binders in life insurance.
My guess for the reasoning why life insurance isn't included [in CIC 382.5] is because if, for example, a bank is requiring life insurance in order to give a loan, they don't want a temporary receipt to force the bank to give a loan before the policy is approved.
Well, you're right, the bank won't loan money until the life insurance is issued, if a collateral assignment is going to be the basis of a loan. But the rest of your "reasoning" is wrong. As Foghorn Leghorn might say, "They ain't no binders in life insurance, son, that's why they don't talk about 'em."
Finally . . .
you are claiming that "temporary receipt" is the same as "binder" in California law
Not so. Reread what I wrote:
"temporary insurance" is the same as a "BINDER".
A conditional receipt, even if labeled "temporary insurance RECEIPT", is not the same as "temporary insurance" as understood by definition of BINDER. A typical conditional receipt says, as I've been clear on, "insurance will be in effect, before a policy is issued, on the latest of (usually three possibilities) . . . if the insured is, or would have been, found to be a standard risk."
So, one last time. You apparently have (or had) it in your hands. Please type out the words of the Mass Mutual receipt you claim to be able to look at and tell us exactly what it says. If I'm wrong, I'll be the first one to say so.
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