4 September 2013 0 Comments

A Binding Matter

combine togetherInsurance agents may have told you they will “bind” coverage for you.  A dictionary definition of bind is:  to unite by any legal or moral tie:  to be bound by a contract.  In the insurance industry a binder is verbal agreement of coverage issued by an agent or insurance company before a policy has been officially issued.  When your agent binds a quote it means that you now have coverage in force.

It is not uncommon for Property and Casualty agents to bind coverage such as automobile or home insurance.  They have the right to bind these types of policies.  However, Life Insurance agents do not have the authority to bind life insurance.  Notwithstanding, agents will often use the term “bind” when dealing with life insurance.  This is a misnomer.  Even if you pay a full premium when submitting a life insurance application, the coverage cannot be bound by the agent and will not be bound by the insurance company.

Any coverage available prior to the life policy being issued will likely come in the form of what is referred to as:  A Temporary Insurance Agreement (TIA).  The TIA will be available if certain conditions are met and questions answered.  Typically, the applicant must be between 15 days and 70 years of age and answer a few questions pertaining to health history.  The questions vary, but are likely to ask if there has been any hospitalization in the past 90 days or treatment for heart disease, chest pain, stroke or cancer in the past 12 months.  If these questions are answered in the affirmative, no coverage will be issued under the TIA.

TIA coverage does not normally go into effect until after any required medical exam has been completed, but at least one company does not make this a requirement.  However, that company asks several more medical questions.

The amount of coverage under a TIA will be the lesser of the amount applied for or a stipulated amount.  The stipulated amount is likely to be between $500,000 and $1,000,000.  Death from self inflicted injuries is not covered.

If you are replacing an existing life insurance policy, never discontinue it until your new policy has been issued, you have paid the initial premium and all delivery requirements have been met.

Your new policy is not bound until that happens..

Next…when you no longer need life insurance does the policy—even term insurance—have  any value?

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