Massachusetts Health & Accident Insurance Practice Exam

Which of the following correctly describes the Binding Receipt?

1. Coverage is guaranteed until the policy is delivered

2. It offers coverage until rejection of the application

3. It requires payment of the premium for coverage

4. It's a formal rejection of inadequate applications

The correct answer is: It offers coverage until rejection of the application

The Binding Receipt is a unique type of receipt provided by an insurance company that indicates the applicant is covered for certain perils, even though the application has not yet been formally accepted and the policy has not been issued. This means that the applicant has some immediate coverage while the insurer processes the application. It remains in effect until the insurer either formally rejects the application or issues the policy. This concept is essential in understanding the nature of binding receipts. The critical element is that the binding receipt provides temporary coverage until the insurer has made a final decision on the application. Therefore, this choice captures the essence of what a Binding Receipt represents in the realm of insurance. In the context of the other options, while a binding receipt does involve aspects of premium payment and application processing, these do not accurately encapsulate the function and significance of the binding receipt as effectively as the correct choice does. The binding receipt's primary purpose is to offer coverage until a formal decision is made, which is why it stands as the correct answer.