If an agent issues an unconditional premium receipt to an applicant for a check that is not paid when presented, what occurs?

If an agent issues an unconditional premium receipt to an applicant for a check that is not paid when presented, what occurs?

• A. I only
• B. II only
• C. Both I and II
• D. Neither I nor II

Answer: (A)

Unconditional premium receipts are meant to bind coverage immediately, but that binding only stands if the premium has actually been paid and funds have cleared. When the applicant’s check is not paid upon presentation, no premium has been received. Therefore, there is no effective payment and no binding coverage from that receipt. The policy does not go into force, and the insurer isn’t obligated to treat the coverage as active. The other potential outcomes would require that the premium have cleared or that coverage start despite nonpayment, which isn’t the case here. So the correct result is that no coverage is in force due to the nonpayment of the premium.

Unconditional premium receipts are meant to bind coverage immediately, but that binding only stands if the premium has actually been paid and funds have cleared. When the applicant’s check is not paid upon presentation, no premium has been received. Therefore, there is no effective payment and no binding coverage from that receipt. The policy does not go into force, and the insurer isn’t obligated to treat the coverage as active. The other potential outcomes would require that the premium have cleared or that coverage start despite nonpayment, which isn’t the case here. So the correct result is that no coverage is in force due to the nonpayment of the premium.