An insurer responds to an application by offering a policy at a higher premium with a limiting endorsement because of the applicant's health. The applicant signs the acceptance form and pays the premium. Legally, this is best described as:

Why B is correct

When the insurer does not accept the application exactly as submitted, its response, such as a policy with a higher premium, an endorsement, or a reduced amount, is a counteroffer. The applicant's signed acceptance and premium payment complete the contract on the counteroffered terms. Until the applicant accepts, no contract exists on those modified terms, which is why the applicant must explicitly accept a rated or endorsed policy before coverage becomes effective.

Why the other options are wrong

• A) The application was not accepted as submitted; the modified offer replaces it, and no contract forms until the applicant accepts it.
• C) A contract is not void merely because the premium changed; the change is a lawful counteroffer that the applicant may accept or reject.
• D) Life insurance is not bound at the point of sale, and no binder mechanism applies to modified terms.

Memory hook

A rated and endorsed offer is a new deal on the table. Sign and pay, and the new terms are yours.