Policy delivery and explaining the contract

Why delivery matters

Selling a health policy does not end when the application is signed. The producer's job ends when the insured has the policy in hand, has paid for it, and understands what it does and does not cover. Delivery is the last chance to prevent a misunderstanding that later becomes a complaint, a lapse or an errors-and-omissions claim.

What counts as delivery

Personal delivery is best practice. The producer hands the policy to the policyowner and walks through it.
Mailed delivery is legally valid, but nobody explains the contract.
Constructive delivery happens when the insurer gives up control of the policy without conditions, for example by mailing it to the producer to hand over. Legally, the policy counts as delivered even though the insured has not yet received it.

Delivery date matters because it usually starts the free-look period.

Tasks at delivery when no premium was paid with the application

If the applicant sent no initial premium, coverage has not started. At delivery the producer must:

Collect the initial premium. Coverage does not begin until it is paid.
Obtain a signed statement of good health (also called a statement of continued good health) when the policy was medically underwritten, as a disability income policy is. The applicant confirms that his or her health has not changed since the application was signed. If it has changed, the producer must not deliver the policy. The insurer has to reconsider the risk first.

Without the premium, and the statement where one is required, the producer should not leave the policy with the applicant. In New York, individual major medical coverage is guaranteed issue and is not underwritten on the applicant's health, so it calls for no statement of good health at delivery.

Policies issued other than as applied for

Underwriting may return a policy that differs from the application: a higher rated premium, an exclusion rider (also called an impairment rider) that removes coverage for a named condition, or reduced benefits. Legally this is a counteroffer, not an acceptance. The applicant becomes the one who must accept it. The producer explains exactly what changed and obtains the applicant's signed acceptance, plus any additional premium. The applicant may refuse the counteroffer.

A five-step path from left to right. Step one: the insurer issues the policy. If the policy is rated or carries an exclusion rider, it is a counteroffer and the applicant must sign an acceptance. Step two: the producer delivers it, preferably in person; an unconditional release by the insurer counts as constructive delivery. Step three: if no premium was paid with the application, the producer collects the premium and, for a medically underwritten policy, a signed statement of good health, and stops if the applicant's health has changed. Step four: the producer explains the contract and gets a signed delivery receipt proving the delivery date. Step five: the free-look period, usually at least ten days and thirty for Medicare supplement and long-term care, during which a returned policy earns a full refund. A box below lists what to explain at step four: benefits, exclusions, limitations and riders, deductibles, coinsurance and waiting periods, renewability, premium due dates and grace period, how to file a claim, checking every answer on the attached application, and the fact that the producer cannot change or waive policy terms. — From issue to free look: the producer's delivery checklist

Explaining the contract

At delivery, the producer should review with the insured:

Insuring clause and benefits: what is covered and how benefits are paid.
Exclusions and limitations: what is not covered, including any exclusion rider.
Deductibles, coinsurance, elimination and waiting periods: what the insured pays and how long the insured waits.
Riders and endorsements: what each one adds or removes.
Renewability: whether the insurer can cancel, refuse to renew or raise premiums.
Premium and grace period: how much is owed, when it is due, and how long payment can be late.
Claims: how and when to give notice and file proof of loss.
The attached application: the insured should check every answer. The application is part of the entire contract. A material misstatement found later can let the insurer contest the policy during the contestable period. Errors should be corrected now, through the insurer, not ignored.

The producer explains the contract but cannot change it. Under the entire-contract provision, only an executive officer of the insurer can change the policy, and the change must be endorsed on or attached to it. No producer can waive a provision.

The free-look period

Individual health policies give the policyowner a free-look (right to examine) period, usually at least 10 days from delivery. Medicare supplement and long-term care policies give 30 days. During it the owner may return the policy for a full refund of premium, no questions asked. The policy is then treated as void from the start. Pointing out the free-look period at delivery is part of explaining the contract.

Good delivery practice

Deliver in person whenever possible.
Get a signed delivery receipt. It proves the delivery date, and with it the start of the free look.
Leave the insured with contact details and instructions for claims and service.
Document what was explained. A file note protects both the client and the producer.

The policy is the promise. Delivery is when the producer makes sure the client knows exactly what was promised.