Which statement about binders in life insurance is correct?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Binders — used in property and casualty insurance to give immediate temporary coverage — are generally prohibited for life and disability insurance. Instead, an applicant who pays the initial premium receives a conditional receipt, which may provide temporary coverage if the applicant is found insurable as applied for; otherwise the premium is returned. The key difference: a binder covers immediately subject only to issuance, while a conditional receipt's coverage is conditional on underwriting approval. Because underwriting is essential to life insurance risk selection, no oral or automatic 30/60-day binder mechanism exists in this line.
Why the other options are wrong
- B) Oral binding is a property-casualty concept. Life insurance agents cannot orally bind life coverage because underwriting is essential to life risk selection before coverage attaches.
- C) The temporary-coverage device for life insurance is the conditional receipt, not the binder. A binder would provide coverage before underwriting, which life insurers generally do not do.
- D) There is no statutory automatic 60-day life binder. Bindering is essentially unavailable in the life line, which relies on conditional receipts instead.
Memory hook
Binders are for car crashes, not corpses. Life uses the conditional receipt instead.