Policy delivery and explaining the contract to the client

Why delivery is its own step

Underwriting ends when the insurer approves the application and issues the policy. But issuing a policy and putting it in force are not the same thing. Policy delivery is the step where the contract actually reaches the client, the final conditions of coverage are satisfied, and the producer explains what has been bought. Done well, delivery cements the sale, reduces early lapses, and closes the last gap in the insurer's risk picture. Done carelessly, it leaves a policy the client does not understand and coverage whose start date nobody can pin down.

Three things happen at delivery, and this lesson takes them in order: the policy is physically handed over and the delivery documented; any outstanding conditions of coverage are met; and the producer walks the client through the contract.

Handing over the policy

Most insurers expect personal delivery by the producer rather than mailing the policy to the client. Personal delivery lets the producer confirm the client still wants the coverage, collect anything still owed, and explain the contract face to face. Mailing is sometimes used, but it forfeits all of that and is generally reserved for straightforward cases where premium was paid with the application and nothing remains to be done.

When the policy is handed over, the producer should obtain a delivery receipt, signed and dated by the policyowner. The receipt establishes the delivery date, which in turn starts the free-look period and fixes the point from which the insurer's obligations run. Insurers may also treat the policy as delivered when they release it to the producer as their agent for delivery -- this is constructive delivery: the insurer has done everything it can to put the policy in the client's hands, even if the producer is still holding it. Constructive delivery matters when a client dies between the insurer's release of the policy and the producer's visit; whether the contract was complete at that moment can decide whether a claim is paid.

One statutory detail belongs here. The application the client signed becomes part of the contract only if a copy of it travels with the policy. In Florida, an application for a life or health policy is not admissible in evidence in an action on the policy unless a true copy was attached to or otherwise made a part of the policy when it was issued (Fla. Stat. 627.408). After the policy is reinstated or renewed, the insured -- or a beneficiary or assignee -- may ask the insurer in writing for a copy of the original application, and the insurer must deliver or mail a legible copy within 30 days (Fla. Stat. 627.408). The producer should confirm at delivery that the application copy is in the policy and point it out to the client, because the answers on it are the representations the insurer relied on.

Meeting the remaining conditions of coverage

Whether coverage is already in force at delivery depends on what happened when the application was taken.

If the full first premium was paid with the application and a conditional receipt was issued, coverage generally became effective as of the date of the application or the date of the medical exam, whichever was later, provided the applicant was insurable at that date on the basis applied for. At delivery there is nothing left to collect; the producer delivers the policy, obtains the receipt, and explains the contract.

If the premium was not paid with the application, the policy is issued on a cash-on-delivery basis and the insurer has made an offer that the client accepts by paying the first premium. Coverage does not begin until that premium is paid and the policy is delivered. Because the insurer's underwriting reflected the applicant's health at application, the producer must also obtain a signed statement of continued good health (sometimes called a good-health statement) confirming that nothing about the applicant's health has changed since the application. If health has changed, the producer must not deliver the policy and collect the premium; the change is reported to the insurer, which decides whether to proceed, re-underwrite, or withdraw the offer. Delivering a policy and taking a premium from someone the producer knows is no longer insurable on the terms issued is a misrepresentation to the insurer.

Some policies are issued on terms that differ from those applied for -- a higher rating, a smaller face amount, or an excluded condition. A policy issued other than as applied for is a counteroffer, and the client must accept it, usually by signing an amendment or acceptance form, before it is in force. The producer must explain the change plainly, not bury it.

Explaining the contract

Delivery is the producer's best opportunity to make sure the client understands what has been purchased, and Florida's life solicitation rules exist precisely to improve the buyer's understanding of the basic features of the policy purchased and the ability to compare the costs of similar plans (Fla. Stat. 626.99). At delivery the producer should walk through, in plain language:

• the type of policy and the face amount, and who is the insured, the policyowner,

and the beneficiary;

• the premium: amount, mode, due date, the grace period, and what happens on lapse;
• riders and exclusions, and any rating or amendment that differs from what was applied

for;

• the cash value and nonforfeiture options, dividend options if participating, and the

policy loan provision, where they apply;

• the incontestability and suicide provisions and why accurate answers on the

attached application matter;

• the free-look period: the client's right to return the policy within the stated

number of days after delivery for a full refund of premium, no questions asked; and

• how to reach the producer and the insurer with questions, and how to make a claim.

The explanation should be honest about limits. A producer who oversells what the policy does at delivery invites a rescission during the free look, a complaint later, or a misrepresentation finding. The goal is a client who could describe their own policy to a family member -- because one day a family member may be the one reading it.

Closing the file

After delivery the producer records the delivery date, the receipt, any premium collected, the good-health statement, and any amendment signed, and forwards everything the insurer requires. A copy of the delivery documents stays in the producer's own file. Good delivery records are what settle disputes about when coverage began, whether the free look was still open, and whether the client was told what they were buying.