Premium Receipts and Contract Delivery

Contract Formation and Premium Receipts

A valid insurance contract requires four core elements: agreement (an offer and acceptance), consideration, competent parties, and a legal purpose. In health insurance, the applicant's consideration generally includes the application and the required premium; application statements are generally representations, and future premiums usually are not an enforceable promise to keep paying. The insurer's consideration consists of its promise to pay covered claims according to the terms of the contract.

Whether the initial premium accompanies the application often affects how the offer, acceptance, and effective date are analyzed, but the insurer's terms and any temporary coverage agreement also matter. Submitting an application together with the initial premium constitutes a formal offer by the applicant. When an applicant pays this initial premium, the producer gives the applicant the insurer's authorized premium receipt. A producer must never issue a premium receipt if no premium has been collected.

In contrast, an application submitted without the initial premium is generally treated as a request for the insurer to offer coverage. If the applicant submits an application without premium, the policy being applied for generally provides no coverage during underwriting unless a separate temporary coverage agreement applies. Without an applicable premium receipt or other temporary coverage, an illness or injury occurring before the policy takes effect is not covered by that policy.