Arkansas Life and Health Insurance Practice Exam

Edward applies for a disability insurance policy. He pays the initial premium at the time of application and receives a conditional receipt. Three days after the insurance company conducts a medical examination, but before it issues a policy, Edward suffers a stroke. Upon reviewing the results of his medical exam, the company discovers that Edward has been diagnosed with high blood pressure and atherosclerosis. Under the terms of the conditional receipt, the insurance company:

1. Approves the claim and issues the policy as applied for

2. Denies the claim because Edward failed to disclose his high blood pressure

3. Denies the claim because the insurer would not have issued the policy as applied for as standard or better

4. Issues a reduced benefit policy

The correct answer is: Approves the claim and issues the policy as applied for

Under the terms of a conditional receipt, once an applicant like Edward pays the initial premium at the time of application and receives the conditional receipt, coverage is usually in force as of the date of the application or the date of the medical exam, whichever is later, provided that the applicant is insurable at the time of application. In this scenario, Edward paid the initial premium, received a conditional receipt, and then suffered a stroke before the policy was issued. However, because he was insurable at the time of application, the insurance company would approve the claim and issue the policy as applied for, as the coverage is considered to be in force from the date of application or the medical exam.