Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An agent tells a life insurance applicant, 'Your coverage is bound and in force immediately.' Which statement about this representation is correct?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Unlike property and casualty insurance, life insurance is not issued by means of binders. Coverage does not take effect at the point of sale; instead, the applicant is generally protected only through a conditional receipt, which can provide temporary coverage if the first premium is paid and the applicant is found to be insurable as applied for. Telling an applicant that coverage is bound is inaccurate and can expose both the agent and the insurer to liability, because no coverage exists until the insurer actually accepts the risk.
Why the other options are wrong
- A) Binders are a property-casualty mechanism; life insurance cannot be bound orally or through any binder at the point of sale.
- B) Paying the first premium does not by itself create binding life coverage; coverage is conditioned on the insurer's acceptance of the application.
- D) Paying cash at the point of sale does not give the agent authority to bind life coverage; underwriting approval is still required.
Memory hook
Life coverage is never 'bound.' It is pending, conditioned, or in force — never bound.