In researching a post written a few weeks ago on how to bind a life insurance application I failed to find any companies still using the tool of choice from the past, the Conditional Receipt. All of the companies I found in my original sweep were using the far friendlier Temporary Insurance Agreement.
I know it probably sounds like I should take up something exciting like jig saw puzzles, but I spend quite a bit of time just cruising life insurance applications to see what questions they ask, how they ask them and how they structure their application. Always on the hunt for an advantage for clients! There are a lot of companies that couch questions in such a manner that it is obvious they are using the infamous “don’t ask, don’t tell” approach. They intentionally leave an opening for lenient underwriting.
But, back to my previous post and my application cruising. Yesterday I finally found a company still using a Conditional Receipt. It was like a blast from the past, a document that should come with warnings and disclaimers abounding if an agent is truly doing their job. Western Reserve Life has yet to join the majority of companies in replacing this relic. In my mind a conditional receipt is so fraught with loopholes as to be almost useless in providing temporary insurance.
Conditional receipts are infamous, not for their binding ability, but rather for the conditions that run a muck in the document that allow the company not to pay in the event of a death during the application process. They mince no words in their initial shot across the bow, “No coverage will become effective prior to the delivery of the policy applied for unless and until all conditions of this receipt have been fulfilled exactly.
Standard in the Temporary Insurance Agreement and the Conditional Receipt is that all checks should be made out to the company and not to the agent. Western Reserve’s conditional receipt goes a step further and states that if you “leave the payee blank…you may jeopardize the insurance for which you have applied.”
The conditional receipt defines the effective date as “the later of application date and the date of the last medical examination, tests and other screenings required by the company.” This is distinctly different from the TIAA in that completion of exams and testing isn’t required in all of them. But the implications of the effective date really come with the conditions. The conditional insurance is only in effect so long as, and I will paraphrase, the conditions are met.
1. If you die during the application the company will continue to underwrite as if you were alive. You have to be found to be insurable exactly as applied for. If you applied for preferred and they found that you would be approved at standard, too bad for your beneficiaries. No insurance.
2. All statements and answers in the application must be true. This may not seem like an untenable threshold, but it is much stricter than the material misrepresentation threshold used for the two year incontestability period. If I were going to put all of my confidence in a conditional receipt for my family’s future, I would have an attorney review the application with me.
3. This one is no big deal. Basically says the company has to receive a check with the conditional receipt that doesn’t bounce.
4. All medical exams, tests and other screenings have to be completed. This can be a problem. It is fairly common for initial lab results to require a new test. Can’t do that new test if you’re dead. The company might see an abnormality on your ekg that is the fault of the examiner and if you die before they can get a new ekg, too bad for your family.
5. Shouldn’t be a big deal requiring that “all parts of the application, supplements, questionnaires, addendums and amendments” are signed, but remember you are dealing with a human agent and in a 20 or 30 page application missing one form is fairly common.
And then they summarize, “if one or more of the Receipt’s conditions have not been met exactly, the company will not be liable.
Bottom line. If you have the need to bind a life insurance application give careful consideration to the document used. As discussed the TIAA is a much fairer avenue than a conditional receipt. I would go so far as to say, as I have to many customers in the past, that unless there is an absolute need to attempt to bind insurance, don’t even both with a conditional receipt. In today’s market if there was a need to bind I would recommend going with a company that has a very open ended temporary insurance agreement.