Binding Receipts****
MR. WATSON: Now, binding receipts - this is important - a binding receipt binds you, meaning you could be covered for $100,000 during the underwriting process. Binding receipts are only for “big fish,” people applying for large policies, like a million dollars, couple million dollars. You can assume that the insurance company is going to want a medical exam for a policy that large. Binding receipts are good for up to 60 days. The company binds you until the company
- accepts the offer,
- rejects the offer,
- or counteroffers.
MR. WATSON: Guys, someone getting a binding receipt is applying for a big policy and the company is going to want a medical exam, right? So here’s the deal: we are going to “throw him a bone” during the first 30 days. The insurance company says, “We’ll give you 30 days to get the medical exam done. If you die from an ACCIDENT during those 30 days, we’ll pay the $100,000 from the binding receipt - even if you did NOT get the medical exam done.”
WOMAN: But I thought if the company wants an exam and you don’t get it done then you don’t have a completed application and you can’t be covered.
MR. WATSON: Right, but the binding receipt is the one exception to that. That’s why it’s only for people applying for really big policies. You with me?
WOMAN: Yes.
MR. WATSON: So in example 1, if he dies in the first 30 days from an accident and has not done the exam yet, he’s covered for the $100,000.
MAN: What about the big amount he applied for?
MR. WATSON: Since he didn’t get the exam done, we don’t have a complete application and he’s not covered for that. Only for the amount in the binding receipt, the $100,000.
MR. WATSON: So in example 2, he dies between the 31st and the 60th day of the receipt, dies of an accident, and has still NOT done the medical exam. He is not covered at all in that case.
MAN: Because he had to get the exam done during the first 30 days.
MR. WATSON: Right. Now example 3: he dies during the first 30 days of a heart attack, which is a sickness. He has NOT done the exam yet. Is he covered?
STUDENTS: No.
MR. WATSON: Right. What if he dies of the heart attack between the 31st and 60th days and has NOT gotten a medical exam yet. Is he covered?
STUDENTS: No.
MR. WATSON: Good. So if he dies in the first 30 days of an accident, he’s covered even if he didn’t get the exam done.
MR. WATSON: If he dies in the 31st to 60th day of an accident, we only pay if he got the exam done. If there’s still no exam done, we don’t pay.
MR. WATSON: If he EVER dies of a sickness, any time during the 60 days, we only pay if he got the exam done. If there’s still no exam done, we don’t pay. Remember, all of this is only for the $100,000 for the binding receipt.
MAN: But what if the exam shows something that makes him uninsurable?
MR. WATSON: Remember, he’s only covered until the insurance company figures out their next move. He’s covered until the company responds with an acceptance, rejection, or counteroffer. So it doesn’t matter what the exam said because the insurance company had not responded at the time he died.
MR. WATSON: Now, if he applies as a nonsmoker and gets the exam done, and the exam shows that he’s a smoker and they make a counteroffer to him on the 17th day of the binding receipt, then at that point the binding receipt is over. He can’t be covered in that case unless he accepts the counter-offer by paying the difference of the premium. The binding receipt is only good while the insurance company is trying to decide if they’re going to accept, reject, or counteroffer.
Policy Effective Date****
MR. WATSON: For our purposes, we will assume that the effective date and the coverage date are the same thing. Now, that’s not technically true, but for exam purposes that’s what we’ll assume.
MR. WATSON: Coverage cannot happen until the insurance company has money and a completed application. So we have to have the completed application and first premium. So let’s talk about this. (Addressing a female student now) You give me an application and money on March 1, and I give that to the company on March 3. Maybe March 1 was a Saturday and I give it to the company Monday.
MR. WATSON: So you give me the application and premium March 1, I give it to the company March 3, the company issues the policy March 15, and I deliver the policy to you, March 30. When is the coverage effective?
MAN: The 15th, when the policy was issued. (Wrong.)
WOMAN: The 1st, when I gave him the money. (Correct.)
MR. WATSON: Ding ding ding ding ding! She is correct! It would be the date she gave me the premium, so she’s been covered since March 1, in this case.
MAN: But the company didn’t issue the policy until the 15th. How can you be covered without a policy?
MR. WATSON: In this example I said she gave me an application and money and that the insurance company issued the policy, right? That means the company didn’t need anything else from her, so she was issued the policy as applied for. There’s that phrase again. As applied for. So since they issued the policy as applied for, she’s been covered since we had full consideration, which was also called the offer to buy, which is on the 1st when she gave me the premium with the completed application.
MR. WATSON: This is the whole point of giving her the conditional receipt we talked about earlier. I gave her a conditional receipt when she gave me the money, and it says that she’s covered from the moment she gave me the money as long as the insurance company issues the policy as applied for. We okay?
MAN: I get it now.
MR. WATSON: So if she dies, say, the 10th, before the company even issued the policy, what do we do?
MAN: We pay the benefit.
MR. WATSON: Yes, excellent. We pay because she’s been covered since the date of the conditional receipt, the 1st.
MR. WATSON: New example. This time, she gives me the application and money, but she needs a medical exam so she goes and gets that done. Then the company issues the policy. When is the coverage effective this time?
MAN: The date of the premium. (Wrong.)
WOMAN: The date of the medical exam. (Correct.)
MR. WATSON: And she’s right again!
MAN: But what about the conditional receipt?
MR. WATSON: I still gave her a conditional receipt, but it’s conditional. Let me ask you something. If the company wants a medical exam, then when is the application done?
MAN: Once the medical exam is done. But I thought you said the premium date is when you’re covered.
MR. WATSON: But for this story, that’s only if we have a completed medical exam. If we don’t have a medical exam and the company wanted one, then we don’t even have a completed application, agreed?
MAN: Agreed.
MR. WATSON: That’s the condition. They’re not going to cover her without a completed application. So if she pays the premium with the application and dies before the medical exam is completed, what do we do?
MAN: Return the premium, I get it now.
MR. WATSON: Exactly. So if she gives me a premium with the application and the company wants a medical exam, then we don’t have a completed application until that medical exam is done. That means even though I gave her a conditional receipt for that premium back on the 1st, if she gets the medical exam done on the 5th and everything is good to go, then coverage is on the 5th. So of course we’re saying there was nothing bad in the medical exam.
MAN: Got it. Even though she gave you the premium, we don’t even have a completed application until that exam is done.
MR. WATSON: Right. Guys, be careful. That story has been on the test. She gives you an application and a premium and then gets a medical exam done. They may even throw in some other stuff about riders or additional coverages just to throw you off. She gives you an application and premium and then gets the medical exam done. The company issues the policy. When is she covered?
STUDENTS: Date of medical exam.
MR. WATSON: Date of medical exam, because that’s when the company had everything they needed, when we had full consideration.
STUDENT: Wow!!!
STUDENT: Wow!!!
Be careful with these above examples.
- Is an exam required
- If so, has it been completed?
Be very careful on the exam and read the question carefully.