Delivery, Replacement, and the Free-Look Clock
On June 3, Ken applied for a $400,000 term policy and paid the first premium with the application. The policy was approved on June 20 and mailed to the agent on June 24. The agent delivered it to Ken on July 8; Ken signed the delivery receipt but did not read the policy until July 15. The policy contains a 10-day free-look provision and a conditional receipt. Ken is replacing an existing $300,000 policy, and the replacement notice was signed but the existing insurer was never notified. On July 18 Ken was hospitalized and died on July 22. The insurer denies the claim, arguing the free-look period had run and that the replacement was improper.
1. Determine when coverage became effective and whether the free-look period had expired at death.
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Two dates matter: the policy's effective date and the start of the free-look period. With a conditional receipt and premium paid at application, coverage typically begins on the date the application and premium were received, provided the proposed insured met the insurer's underwriting requirements as of that date - so coverage would date to June 3, or to the later of application and medical completion, depending on the receipt's exact wording. If the policy was delivered and the first premium was already paid, the free-look period generally runs from delivery, not from mailing. Delivery occurred July 8, so a 10-day free-look would expire around July 18. Ken died July 22, after the free-look window. But the free-look period governs the owner's right to return the policy for a refund; it does not determine whether the death benefit is payable. The real question is whether coverage was in force on July 22. If the conditional receipt attached coverage from June 3, the death benefit is payable, subject to the contestability period and any material misrepresentation. The free-look argument is a distraction; the insurer's denial should be challenged on the receipt language.
2. Assess the replacement problem and the insurer's use of it to deny the claim.
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The replacement was mishandled: a signed replacement notice existed, but the existing insurer was never notified, which violates state replacement regulations and the agent's duties. That is a regulatory and agent-conduct problem, not a coverage defense. Replacement rules exist to protect consumers from churning and to ensure they understand the surrender charges and lost benefits of the old policy; they do not make the new policy void. The insurer cannot deny a death claim because a replacement notice was not sent to the old carrier, and if it tries, Ken's beneficiary should point to the policy's incontestability clause - after two years, the insurer cannot contest the policy for misrepresentation, and here the policy was issued in June with no suggestion of fraud. The beneficiary should also examine whether the old policy was still in force, because if it was, there may be two claims. The agent's failure to complete the replacement process may support a complaint to the state insurance department, but it does not defeat the claim.