What is Conditional Receipt Life Insurance?

Some life insurance options, like many term life policies, don’t take much time at all to let you know whether or not you’re approved. Others, like instant issue, let you know almost immediately. 

But whole and universal life insurance policies may take from six to eight weeks to communicate approval. Conditional receipt life insurance can offer you coverage between the time of your application and approval. Learn more about conditional receipt life insurance now. 

What is Conditional Receipt Life Insurance?

Conditional receipt life insurance gives an insurance company an opening in which they can ultimately approve or deny an applicant’s coverage. If the applicant should happen to die in that time between application and approval, then the insurance company will pay the death benefit. 

If you die between the time of application and approval, conditional receipt life insurance will honor the death benefit. It will only pay, however, if your application gets approved. If you die during this time period and your policy is ultimately denied, then the insurance company is not required to pay the death benefit.

Because you make a payment at the time of application, technically you’re insured the second you sign on the dotted line and hand your insurance agent a check. But what if your policy eventually gets denied? If you die during the time between signing the contract and ultimate approval, your insurance policy will pay the death benefit. But that’s only if you’re approved. 

Conditional receipts are common. It’s the insurance agent’s responsibility to inform the applicant of conditional coverage.

The Conditional Binding Receipt

A conditional binding receipt is a receipt given to an applicant after they’ve signed their application and paid their first premium. This means the insurance policy is now in force. If the policyholder or contract owner should die before the policy is completely processed, then the insurance company must pay the death benefit, but only if the policyholder is ultimately approved for coverage. 

The conditional binding receipt is what holds the life insurer liable to the terms of the insurance policy. This binding instrument is what forms the conditional contract between insurer and insured.

The reason for a conditional binding receipt is to make sure the applicant has protection during the period between paying their first premium and ultimate approval. Because this process can sometimes take up to eight weeks, the time in between application and approval requires life insurance coverage. 

While this process exists to protect the applicant, it also serves to protect the insurance company as well. If the applicant is ultimately denied coverage, the life insurer won’t be held responsible for paying the death benefit. 

The conditional binding receipt should not be confused with a simple binding receipt in that the binding receipt is unconditional. With a binding receipt, the insurance company is responsible for paying the death benefit whether the applicant ultimately gets approved or not.

How Does Conditional Receipt Life Insurance Work?

Let’s take a look at an example to better understand how conditional receipt life insurance, or conditional binding receipts, works.

Let’s say, for instance, that Anna is a healthy 40-year-old woman. On January 1, she applied for a $1 million whole life insurance policy, which facilitates a six- to eight-week waiting period due to the required medical exam. 

Then, Anna is unexpectedly killed in a car crash on January 10. This happens before the insurance company has had time to either approve or deny her policy. 

In this case, if Anna has a conditional binding receipt, the insurance company must continue with her application. If she is ultimately approved, the insurance company must pay the already agreed-upon death benefit. If she gets denied, the insurance company does not have to pay. 

If her insurance policy does not have a conditional binding receipt, then the insurance company can halt the application process. The insurance company is only required to pay the benefit if:

• The applicant is ultimately approved
• The insurance application gets submitted and the first premium gets paid
• The receipt gets categorized simply as “binding” and not conditional

Why is There a Need for Conditional Receipt Life Insurance?

Typically, the requirement that holds up any life insurance policy is the medical exam. Many types of term life insurance, such as final expense or simplified issue policies, don’t require a medical exam at all. These typically take just a few days (sometimes only hours) to determine approval or denial status. 

But permanent life insurance like whole or universal life, especially the more expensive policies, typically do require a medical exam, and this is what takes time. 

More expensive term life policies may also require a medical exam. You may see advertisements for insurance where they offer life insurance with no medical exam up to a predetermined amount. This is typically term life insurance, although if you go over the set amount you will have to submit to a medical exam.

Why Purchase Conditional Receipt Life Insurance?

The good news is, in most cases, you don’t have to purchase conditional receipt life insurance at all. It just comes with the policy. Most life insurance policies come with a conditional binding receipt built right in. 

Just in case, ask your insurance agent if your policy includes a conditional binding receipt. You’d hate to get caught unprotected if something were to happen to you between the time of application and approval. Don’t leave yourself exposed.

Who Benefits From Conditional Receipt Life Insurance?

The beneficiaries of conditional receipt life insurance are of course the same as the beneficiaries of the life insurance policy itself. That doesn’t change. What is different is that if you don’t have a conditional receipt, your beneficiaries will not receive the death benefit if you die between the time of application and ultimate approval.

Remember, the reason you’re buying a life insurance policy in the first place is to protect the ones you love. How are you protecting them if in between the time of application and approval there is up to an eight-week window where there is no protection at all. In this case, your protection is the knowledge that there is something called conditional receipt life insurance and to make sure you have it. Don’t get caught short by just assuming you’re covered at the time of application. Just paying your first premium doesn’t necessarily mean you're covered already.

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Now that you’ve got a good handle on what conditional receipt life insurance is, it’s time to decide what kind of policy you’ll need — how much coverage and who to buy it from. 

Understanding Conditional Receipt Life Insurance

Understanding conditional receipt life insurance is really nothing more than understanding what life insurance itself is. Of course, if you’re getting a term life policy where the waiting period is just days or even hours, there’s no real need for a conditional binding contract. You may get one anyway, but the kind of insurance where you’ll need to make sure you have conditional binding coverage is permanent insurance like whole or universal life. 

If you’re looking at a life insurance policy with a large death benefit that requires a medical exam, you need to make sure you’re covered during the in-between time, that time between application and ultimate approval. Understanding exactly what conditional receipt life insurance is, and making sure you have it, can make all the difference if the unexpected suddenly happens to you.

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