A $20,000 life insurance policy application is completed without the initial premium being collected. When does the coverage become effective?

The correct answer is that the coverage becomes effective when the applicant pays the initial premium. In life insurance transactions, the issuance of a policy is contingent upon the payment of the premium, which is a critical factor in establishing the contract between the insurer and the insured. Until the initial premium is collected, the insurer is not contractually obligated to provide coverage, regardless of any approval of the application or submission date.

When the applicant receives the policy, this typically signifies that coverage is in force, provided the applicant has also made the initial payment. This payment solidifies the agreement, confirming that the insured has accepted the terms laid out in the policy. Hence, without the payment, even if the application is approved and the policy is delivered, the coverage does not officially take effect.

In summary, the requirement for the initial premium to be paid before coverage becomes effective is a standard practice in the life insurance industry, ensuring that both parties are committed to the contract.