15. A producer completed an application for Disability Income insurance on W, collected the initial premium, and issued a conditional receipt. If W was disabled in an accident before W took the required physical examination and submitted a claim, the insurance company would most likely take which of the following actions?
Answer: C
The insurance company would most likely deny the claim and refund the premium paid.
In this scenario, since W did not complete the required physical examination, the insurance company is likely to deny the claim based on the terms of the conditional receipt and refund the premium that was initially collected.
A) Pay the claim and require an additional premium.
This option is incorrect because, under standard insurance practices, the insurance company would not pay the claim until all conditions, including the physical examination, are met. Additional premiums would not be assessed in this context as the policy is not yet active.
B) Pay the claim and cancel the policy.
This choice is also incorrect. If the claim is paid, it would imply that the policy is active and in force. However, since W did not fulfill the requirement of taking the physical examination, the policy would not be considered active, making this option unfeasible.
C) Deny the claim and refund the premium paid.
This option is correct. Given that W did not complete the necessary physical examination, the insurance company is justified in denying the claim due to the lack of a valid policy in effect and would typically refund the premium that was collected prior to the completion of the application process.
D) Deny the claim and issue a rated policy.
This option is incorrect because a rated policy typically requires that the applicant has already passed underwriting and been accepted for coverage. Since W had not completed the required physical examination, the insurance company cannot issue any form of policy, rated or otherwise, and would simply deny the claim.
Conclusion
The correct answer is C, as the conditional receipt does not provide full coverage until the physical examination is completed and the policy is formally issued. All other options fail because they either assume an active policy status that does not exist or suggest actions that contradict the underwriting requirements for Disability Income insurance.