When you have made up your mind to get life insurance, you probably want coverage right away. After all, your family needs the financial protection. It would be a cruel twist of fate if you died while your application was in the processing stage and your loved ones did not receive an insurance payout. Fortunately, in most cases, you will be covered in such a situation because of what is known as a conditional life insurance receipt.
Basics
A conditional receipt is what you get when you send in an application for life insurance along with an initial premium payment. It provides for coverage while the insurance companies decides whether to issue you a policy or reject you, according to Answer Financial. Some companies will only provide the conditional insurance up to a certain amount, such as $250,000. If you die during the conditional period, the insurance pays out only if you would have actually qualified for the coverage--not if you were destined for rejection and not if you would have qualified for a different monthly premium than the one you applied for.
Time Frame
Applying for life insurance is paperwork-intensive and time-consuming, according to Insure.com. In all, the process often takes four to six weeks.
Process
The conditional life insurance receipt applies as the insurance company conducts its underwriting process. The firm looks at how risky it is to insure you based on factors such as your age, current and past health, and habits such as smoking, occupation and hobbies, according to New York Life. Generally, a medical exam is required. Based on your risk, the company determines whether to issue you a policy and, if so, what price to charge for it.
Considerations
Certain companies go a step beyond conditional coverage, instead offering "temporary" life insurance while your application is under consideration, according to Steve Daiber, regional senior vice president of Symetra Life Insurance Co. in Bellevue, Wash. That means a death benefit will be paid if you die during the application process no matter whether your application would eventually have been approved or not. To qualify for temporary coverage, Symetra requires that you meet these conditions: Answer questions honestly; be in reasonably good health, meaning no hospitalization in the past 90 days and no treatment of serious diseases such as cancer in the previous two years; and submit payment.
Expert Insight
Broker Ed Hinerman, owner of the Hinerman Group in Colorado, calls temporary life insurance coverage the "kinder, gentler cousin to the conditional receipt." In fact, he views conditional receipts as outdated and says that system "was a real rat's nest of potential problems" for life insurance customers. "To say that the process was heavily tilted in favor of the company and that the potential for a claim not to be paid as expected was high," he wrote in 2009, "were actually both understatements." Particularly "egregious," Hinerman said, is the requirement regarding rate class. If you applied for "preferred plus" premiums but only qualified for "preferred" or "standard" rates, the conditional receipt would not result in a payout in the event of your death.
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