Under what condition will an insurance policy become effective after a producer gives a conditional receipt?

The correct choice is based on the fundamental principle governing conditional receipts in insurance practices. A conditional receipt is a document issued by an insurance agent that acknowledges the receipt of an application and premium payment, while also indicating that the policy will only become effective if certain conditions are met.

In particular, the key condition usually revolves around the applicant's insurability at the time of the application. This means that if the applicant meets the underwriting requirements specified in the receipt—such as being in good health or passing necessary medical evaluations—the insurance policy will become effective on that specific condition. Therefore, the policy does not go into effect solely upon payment of the premium or immediately after the receipt is issued; rather, it is contingent on the fulfillment of the stated conditions.

This concept is essential in understanding how conditional receipts function within the underwriting process, reflecting the insurer's need to assess risk before fully committing to the coverage. The aspect of processing the application pertains to the insurance company’s internal procedures, but it is the applicant's circumstances at the time of the application that ultimately determine the effectiveness of the policy under the terms of the conditional receipt.