It's never fun having a discussion as a family or with a financial professional to figure out how much life insurance you need. Most people dread this conversation as much as going to buy a new car because you are going to always feel like the insurance agents are ready to pounce on making a sale. As long as I've been doing this, I have still yet to hear a surviving spouse tell me that they bought too much life insurance.
With many married couples, it is still usually one spouse who drives the conversation about how much life insurance the family needs. Usually it is the major breadwinner of the family. Recently, I heard yet again another sad story from a surviving spouse whose husband passed away way before his time. When I learned a little more about the situation, she revealed that he had been approved for a large sum of life insurance a few years back but didn't take it because he felt he could get a better rating. A couple of years later, he reapplied for life insurance and actually got a better rating. However, after being wishy washy over which policy to take when he was approved, he never made a decision to take any of the policies and left the family without any life insurance because he died. The face amount of insurance had actually been approved, but he just didn't accept and pay for the policy to put it in force.
This is where the term 'conditional receipt' becomes a very important conversation that most families glance over when they apply for life insurance. When you take an insurance application, naturally there is going to be a period from the time you sign the application until the date the application actually gets approved. In between those dates, you'll have to do a phone interview, likely take a blood sample, ekg, etc. depending on the amount of insurance you apply for at that time. Typically, the insurance company will ask for certain records from all of your physicians so they can do the best job possible in ascertaining what rating you should get for the life insurance.
You have the option at the time of the application to submit a first month's premium or submit no premium at all. The important part to attaching an initial premium called 'conditional receipt' is that if the policy gets approved (it must get approved and not just be in underwriting) and you die prior to the policy being delivered, it will still be considered binding by the insurance company due the fact that you submitted the premium for the first month (or year) along with the application. Be sure to check the exact definition with each insurance company when you apply for life insurance. Imagine that the policy is approved and waiting delivery as referenced in the case above. The family would still qualify to get the death benefit simply over floating a small chunk of change.
Much like insurance at a Black Jack table in Las Vegas, many people simply forgo paying this amount with the application because they see it being a waste of money floating their cash with an insurance company for a few months. However, I would recommend that you always submit an initial amount with the policy if you are serious about the insurance because you can never know what unforeseen circumstances could arise between application and delivery. This small amount could make a huge difference for your family should something prematurely happen to you, so consider the 'conditional receipt' the next time you apply for life insurance.
Written by: Ted Jenkin
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