Should I Pay Up Front When I Apply For Life Insurance? What Is A Conditional Receipt?

Many agents and agencies require money with your application. That is their requirement, not the requirement of the company that you are applying with. My feelings on this subject are that it takes a lot of gall to ask someone to pay for something that hasn’t been delivered and, until it has gone through underwriting, really has no set price. You may have a quote, but it is subject to an exam and medical underwriting.

Knowing that the money thing can be kind of a sticking point, when they ask for money they offer what is called a “conditional receipt” and sometimes called a “binding conditional receipt”. I’ll get a little deeper into that in a minute, but let this soak in for a minute. In an article by John Dwight Ingram in the winter 1998 Federation of Insurance and Corporate Counsel Quarterly, he states “Insurers are willing to provide temporary coverage for most applicants because in return they gain the advantage of the applicant’s psychological commitment to go through with the purchase.” The conditional receipt in the eyes of the agent and the company is a psychological tool!

Now, back to that “conditional” receipt. Agents often present this as a way to be covered instantly and have your coverage in force during the application process. Very seldom is this part of the process done correctly. Remember, the receipt is “conditional”. A good agent using a conditional receipt for respectable purposes will go through a painstaking reimen of explaining each condition.

Here is a list of standard conditions. I am paraphrasing, but if you would really like to see the full version, let me know.

1.  The money has to be paid. (That’s all the agent wanted anyway)

2. All medical exams must be completed.

3. The policy has to be approved EXACTLY as applied for.

4. On the date of application your health has to be EXACTLY as you stated on the application

5. The check can’t bounce.

Generally there is also a maximum amount. The one I am looking at has a maximum amount of $500,000, so if you are applying for $2,000,000, don’t think that’s what your wife will get if you die prior to the policy being approved.

So, just a few points, and these are points that any agent who uses a conditional receipt should drive home in no uncertain terms to the client.

Number 2. All medical exams have to be completed. No big deal? What if you complete your exam and then head off to work and die in a car accident? What if the examiner drops a vial and the company doesn’t have a complete exam? What if there is protein in your urine and the company would require that you have additional urine tests to approve the application? The scenarios for a completed exam not working out are fairly large in number. The company doesn’t pay anything without all exams being completed.

Number 3. This is the big one. Your application has to be approved EXACTLY as applied for. If you applied for preferred rates and your cholesterol on your labs was 251 and you didn’t qualify for preferred rates, they don’t just approve you at the higher rate. If you died in the interim, the conditional receipt is void. No death benefit.

Number 4. Your health has to be EXACTLY as stated on the application. There is no room for forgetting something. If you, however innocently, didn’t answer some health question correctly, the receipt is void. No death benefit.

Bottom line. There are a few real reasons for using a conditional receipt. Any agent that uses them as a general practice, is using a psychological tool. In the last 10 years I have written 3 out of thousands of applications. Keep your money in your pocket until the agent delivers and if you need conditional coverage, make sure you understand what you are signing and paying for.