Question

A receipt given to an applicant when an agent collects both the application and initial premium. Under a conditional receipt, the applicant is covered against loss, should it occur, before the policy becomes effective, on the 'condition' that the applicant is found to be insurable as applied for by the insurer's underwriting department upon completion of its underwriting process.

Answer 1

A conditional receipt in insurance provides coverage to an applicant from the time an application and initial premium are received, but the coverage is contingent on the applicant's insurability determined by the insurer's underwriting.

Step-by-step explanation:

The question pertains to a conditional receipt, which is a document provided to an insurance applicant when an initial premium is collected along with the application.

This receipt ensures the applicant is covered against loss from the time of application, but this coverage is contingent upon the applicant being deemed insurable after the insurer's underwriting process.

Essentially, insurance is a method to protect an individual from financial loss through the transfer of risk to an insurance company in exchange for regular premium payments.

The insurer compensates policyholders who suffer losses from covered events, but coverage under a conditional receipt is subject to the company's evaluation of the applicant's insurability.

This concept is part of the larger framework of understanding insurance products and the roles of various assurances like warranties, service contracts, and the principle of moral hazard.