Tennessee Life and Health Insurance Practice Exam

In this scenario, the correct answer indicates that the face amount is disbursed upon the applicant's death, even though the policy was not yet officially issued at the time of their passing. This situation often falls under the principle of "conditional coverage," which can be applicable in specific contexts.

When an applicant signs a life insurance policy and pays the first premium, they may be protected under a conditional receipt, assuming one was provided. A conditional receipt often states that coverage begins as of the date of the application or the payment of the premium, provided that the applicant meets specific criteria (e.g., they are still insurable). If the applicant dies before the policy is issued but has complied with these terms, the insurance company is generally obligated to payout the face amount of the policy to the beneficiary.

This principle is founded on the intent of protecting applicants who have made a premium payment and signed the policy, showing their intention to secure life insurance coverage. In contrast, the other scenarios would not apply because they do not consider the conditions typically attached to a conditional receipt that forms coverage before formal issuance.