When you apply for life insurance, you may be asked to make an initial payment in the amount that you were quoted as the monthly premium at the same time that you submit your application. Insurers do not always make such a request, but if you have the opportunity to make an initial premium payment, it could benefit your loved ones. This initial premium payment creates what is called “conditional coverage.”
Conditional coverage becomes effective when an initial premium payment is submitted at the same time as a life insurance application. This payment establishes life insurance coverage for the applicant throughout the application process, from the time of submission through the time that the company’s underwriting department decides whether to approve or deny the application.
If the company’s underwriters approve the application and the applicant accepts the policy, the payment is applied toward the policy’s initial activation premium and there is no break in coverage. If the underwriters decide not to approve the application, or if the applicant declines coverage after receiving more information about the policy (e.g., the applicant qualifies for coverage but at a higher rate than they are willing to pay), the payment is refunded in full and coverage ceases immediately. Thus, conversion of the temporary coverage to longer-term coverage is conditioned on the application resulting in an activated life insurance policy.
However, the initial premium payment isn’t just an advance made in the hope that an application will be approved. This payment essentially starts the applied-for insurance coverage at the moment of application submission. If the proposed insured were to pass away the day after signing and submitting the application for coverage, even without having completed a medical exam, the application is considered to be approved and coverage is officially put into place. This means that the insurance company will still pay out the death benefit to the policy’s beneficiaries provided the underwriters would have approved the application even without the insured’s death.
If the insurer completes the underwriting process and determines that the application does not meet the criteria for coverage and must be declined, the initial payment is refunded to the policy owner or the estate of the deceased, and no death benefit is paid.
However, like with fully in-force policies, there are reasons why an insurance company may decline to pay a conditional coverage death benefit, even if the policy might otherwise have been approved. For example:
- Most companies are required by law to have a “suicide clause” that states that a death benefit will not be paid out to beneficiaries if the insured dies by suicide within the first one or two years of a policy being activated.
If you or a loved one are in crisis, the Veterans Crisis Line is available to servicemembers, veterans, and their loved ones at all hours – call 988 and press 1 or text 838255 to access free and confidential support.
- If the insured were to be murdered by the beneficiaries of the policy or if the insured were to pass away while engaged in illegal activities (e.g., overdosing on drugs or committing a crime), an insurer may refuse to pay the death benefit. The exact circumstances that result in a denied claim vary by company, so it’s important to read the fine print – though generally if the insured avoids illegal activities, a claim would not be denied for this reason.
- Most life insurance policies have a contestability period of one or two years. If the insured passes away during this time (including within the conditional coverage period), the insurer may take a harder look at the insured’s application and review the coverage for potential fraud (e.g., not disclosing a particular illness or high-risk hobby). If the company finds any proof of fraud, it can deny payment of the claim.
Note that many insurers have war and/or terrorism clauses that allow them to decline death benefit payments to the beneficiaries of an insured who passes away in a war zone or as the result of terrorism-related activities – Navy Mutual has no war, aviation, or terrorism exclusions for those on active duty, which makes our coverage particularly suitable for active duty servicemembers.
Life insurance is intended to protect your loved ones from feeling the full financial impact of your passing. In the event that your passing occurs sooner than expected, conditional coverage can offer your family protection while you wait to get approved for life insurance – a process that can take weeks – and at no greater cost than you would otherwise pay in life insurance premiums. The peace of mind for your family members is priceless.