Tennessee Insurance Practice Exam

What kind of receipt is issued if coverage begins immediately upon application approval with the initial premium submitted?

1. Conditional receipt

2. Binding receipt

3. Temporary receipt

4. Final receipt

The correct answer is: Conditional receipt

The situation described involves a scenario where coverage starts right away upon the application’s approval along with the initial premium payment. In this context, a binding receipt is the correct type of receipt issued. A binding receipt guarantees that coverage is in effect as soon as the insurer receives the application and the premium, regardless of any further underwriting decisions. This means that the applicant is immediately covered, and the insurance company cannot deny coverage based on health issues or any other factors that might be found during future underwriting, as long as the application is ultimately approved. The other types of receipts listed do not apply to this specific situation. A conditional receipt typically indicates that coverage is contingent upon certain conditions being met, which does not guarantee immediate coverage. A temporary receipt suggests coverage might begin but is usually limited in duration while the insurer reviews the application. Lastly, a final receipt is usually issued after policy issuance, confirming coverage but not signifying the immediate inception of coverage upon application. Thus, the binding receipt is the most appropriate answer since it confirms that coverage takes effect immediately upon acceptance of the application and payment of the initial premium.