Life & Health Insurance Practice Exam

What is an example of a condition needed for a conditional policy to be effective?

1. Payment of premium

2. Completion of application

3. Legal age of the applicant

4. Current health status

The correct answer is: Payment of premium

A conditional policy is an insurance agreement that becomes effective upon the fulfillment of certain conditions. One of the primary conditions necessary for the effectiveness of this type of policy is the payment of the premium. When the applicant pays the premium, it signifies acceptance of the policy terms and activates the coverage. Other factors like the completion of the application, the legal age of the applicant, and current health status may play a role in the underwriting process or the approval of the policy. However, the actual activation of the policy hinges directly on the payment of the premium. Without this payment, the insurance company has no contractual obligation to provide coverage, regardless of the circumstances surrounding the applicant's health or age. Thus, the requirement for premium payment is a critical condition that ensures that the policy goes into effect.