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► Initial Premium and Receipts. Premiums Paid with the Application. It is generally in the best interests of both the proposed insured and the agent to have the initial premium paid with the application and forwarded to the insurer. For the agent, this will usually help solidify the sale and may accelerate the payment of commissions on the sale. The proposed insured benefits by having insurance protection become effective immediately, with some significant restrictions. The producer should collect a premium from the applicant at the time of application or as early as possible. The premium is generally forwarded with the application to the underwriting department. However, if a premium is not paid with the application, the agent should submit the application to the insurance company without the premium. Even if approved and issued, the policy will not become effective until the initial premium is collected. An application submitted without an initial premium is typically referred to as a trial application. Recall that an applicant's consideration is one of the requirements for a valid contract. In the case of an insurance contract, the consideration is the first premium payment plus the application. An insurer will not allow an applicant to possess a policy without receipt of the initial premium. Whenever a premium is collected at the time of application, the producer must leave a premium receipt with the applicant. An applicant is provided with a premium receipt at the time the application is completed, and an initial premium is paid. This receipt is proof that an initial premium was paid with the application. The type of receipt provided may determine when coverage will be effective or in force. Premium Receipts. Applicants who pay a premium deposit with the application are entitled to a premium receipt. It is the type of receipt given that determines precisely when and under what conditions an applicant's coverage begins. There are two types of receipts in existence that may be provided to an applicant when the producer collects a premium, including a conditional receipt and a binding receipt. Conditional receipts generally provide coverage as of the date of the receipt as long as a specific condition is satisfied. Meaning, coverage can be provided if the proposed insured demonstrates insurability. Insurability may be accomplished simply by submitting the application to the underwriting department, and it is approved or declined on its own merits. No other information may be required. Another "condition" that may have to be satisfied is that insurability may have to be proven in other ways. For example, the insurer may wish to receive more information before it approves the application or agrees that the proposed insured is, in fact, insurable. Information may be obtained from other areas as well, such as the Medical Information Bureau, a consumer report, an attending physician statement, a medical exam, or other tests (i.e., blood test). These receipts identify the amount of premium collected and may inform us when coverage is in effect. The conditional receipt is predominantly utilized today, whereas the binding receipt is used in a limited fashion. The date appearing on a conditional receipt always reflects a date earlier than the policy's issue date.