Which statement describes when a life policy becomes effective?

• A. The policy is delivered to the insured
• B. The insured signs the application
• C. The policy is issued and initial premium is collected
• D. The insured pays the initial premium only

Answer: (C)

The policy becomes effective when the insurer has issued the policy and the initial premium has been collected. Issuance means the insurer has approved and finalized the contract, making it binding. Collecting the first premium shows acceptance of the risk and funds the contract to be in force. Delivering the policy to the insured doesn’t by itself activate coverage, and signing the application is part of applying, not the moment the policy becomes active. Paying only the initial premium isn’t sufficient if the policy hasn’t been issued yet—the binding moment is the combination of issuance and premium collection.