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When does a life insurance contract become effective if the initial premium is not collected?

  1. When the application is approved

  2. When the policy is issued

  3. When the producer delivers the policy and collects the initial premium

  4. When the coverage is applied for

The correct answer is: When the producer delivers the policy and collects the initial premium

The life insurance contract becomes effective when the producer delivers the policy and collects the initial premium. This is crucial because life insurance policies typically require the first premium to be paid at the time of delivery for coverage to take effect. Until the initial premium is collected, the insurer does not assume any risk. The application approval and policy issuance indicate that underwriting has accepted the risk, but without the initial premium being received, there is no binding contract or coverage in place. Similarly, the coverage applied for does not equate to active coverage — it merely signifies the applicant’s intention to obtain insurance. Therefore, the process of delivering the policy and collecting the premium finalizes the contractual agreement and allows the insurance coverage to officially begin.