At the time an applicant pays the first premium for an individual disability policy, the agent must, under California Insurance Code Section 1730.5:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 1730.5 requires a life agent to provide all insureds or applicants, at the time of application or receipt of premium, the effective date of coverage if it is known, or the circumstances under which coverage will become effective if conditions precedent to coverage exist. This disclosure protects consumers from assuming they are covered when a condition, such as underwriting approval or a medical exam, has not yet been satisfied. The requirement applies to personal lines of insurance, including individual disability and health insurance. If the agent collects premium before coverage is effective, the applicant must understand precisely when protection begins and what must happen for it to begin.
Why the other options are wrong
- B) The statute requires disclosure of the effective date of coverage or the conditions precedent to coverage, not a signed statement that the applicant has read the entire policy. The disclosure protects the applicant's reasonable expectation of coverage, which is the very interest the statute aims to preserve.
- C) A certificate of authority is the authorization issued to insurers by the Commissioner; it is a licensing document, not something given to an applicant at the point of sale.
- D) The statute imposes a consumer disclosure duty on the agent at the point of sale; it does not require the agent to file the application with the Commissioner within any time frame.
Memory hook
Premium in hand? Say when coverage starts — or exactly what must happen first.