When exactly does
the term life insurance effective begin?
That's a great question with far reaching
implications if benefits are triggered while in the
application process. Let's take a look at
effective dates and the other potential clauses that
are common for life insurance policies.
To determine the
effective date, we need to look at another fancy
insurance term called "offer and acceptance".
Keep in mind that the application and policy itself
are contracts between you and the
carrier. With life insurance, offer and
acceptance essentially speaks to the fact that both
parties agree to the contract. The applicant
confirms his/her agreement by completing the
application and submitting an initial premium
amount. The carrier, after completing the
life underwriting process, will send formal notice of
approval which is the company's agreement to the
contractual terms and obligations of the specific
life insurance policy. The "offer" is the
applicant's submittal of signed and completed
application plus premium. The "acceptance"
occurs when the carrier agrees to the coverage and
issues an approval of the terms. The carrier
is accepting the applicant's "offer".
What if the
applicant submits the application but not premium?
A common question we hear with insurance is why
premium needs to be submitted up front before the
carrier makes a decision. It is precisely due
to the offer/acceptance clause of the insurance
contract described above. Without the premium
submittal, there is no "offer". In this case,
the carrier makes the offer if it issues a policy
and this policy is received by the applicant.
"Acceptance" only occurs when the applicant sends
the corresponding premium.
Why is this
important in terms of the effective date? With
most carriers, the effective date will not occur
until the premium is received and the carrier may
request a statement to confirm the applicant is in
good health before issuing the policy. If
health changes or an applicant passes away while in
underwriting, this difference is critical
to this, our recommendation is to submit payment up
front with the application to avoid such a
situation. It does happen and you would hate
to be a few days short on such a big deal as life
A receipt is
usually generated when the application/payment is
submitted. Depending on the
carrier/plan, this establishes the effective date of
the policy. If a receipt is not given, the
effective date may be pushed out to when the policy
is issued and delivered to the application.
Delivery in many cases constitutes the effective
date of the policy. This can be manual
delivery or in today's world of people
term life insurance policies online, via emailing
and/or mailing of documents. It's important to
look at your policy of choice and understand how the
carrier establishes effective date.
In some cases,
term life application may ask the carrier to backdate the
effective date after approval in order to get a
younger age and a resulting better rate.
date also affects the contestability clause (period
usually of two years during which the carrier can
contest the policy based on missing information or
misrepresentation) and the suicide clause (usually
two years). These clauses start counting from
the assigned effective date.