Initial Premium Payment in the Insurance Application

Instructor: Ian Lord

Ian has an MBA and is a real estate investor, former health professions educator, and Air Force veteran.

In this lesson we look at the importance of the initial premium payment in an insurance application. We will also examine the different types of receipts companies use to set the effective date of the policy.

Initial Premium Payments

Jason is ready to complete his application for a life insurance policy and submit it to the company. His agent, Fred, explains to him that he will need to submit the initial premium along with the application. Fred also mentions that different companies have different receipt policies which will affect some specifics of the coverage.

The initial premium is simply the first payment made on the insurance policy. Let's say Jason's policy costs $20 a month, and he is submitting his form on July 1st. He must include the first $20 payment with the application. However, there is more to getting insurance coverage than just submitting an application and payment. This is where the company's receipt policy comes into play. Let's examine the the different types of receipts involved in the initial application process.

Conditional Receipt

The most common type of receipt is the insurability conditional receipt. Conditional means the insurance coverage is dependent upon Jason's condition at the time of the application or the results of a medical exam. With a conditional receipt, Jason will be covered on the application date as long as he passes the underwriting requirements.

Historically, an approval receipt form was used, which sets the effective date as the date of policy approval instead of initial payment. These are not used very often today, because courts have often ruled against these types of receipts. This isn't surprising considering a company could have the applicant's money while the insurance policy isn't in place.

Let's say that Jason's coverage is dependent upon him not currently having cancer. If Jason were to die the day after he applies for the policy from a vehicle crash, the insurance company would pay his beneficiaries as long as his medical records and physical exam show that he doesn't have cancer. If Jason did have cancer and passed away from a vehicle accident, the company would not pay out the policy since Jason did not meet the underwriting standards to qualify for the policy, even though the death was not cancer-related.

Binding Receipt

Some insurance policies also include a binding receipt feature. The binding receipt confirms that the policy is effective on the day the initial premium is received.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account