South Carolina Life and Health Practice Exam

What happens when an insurer agrees to cover a risk?

1. The policy is considered void

2. The policy is executed

3. The coverage limit is increased

4. The contract is underwritten

The correct answer is: The policy is executed

When an insurer agrees to cover a risk, the policy is considered executed. This means that both parties—the insurer and the insured—have entered into a legally binding agreement as specified in the insurance contract. Execution of the policy typically follows from the acceptance of the application, underwriting, and payment of the premium. At this point, the insurer is obligated to provide coverage for the specified risks, as outlined in the policy documents. This process is crucial because it defines the terms of the insurance coverage, including what risks are covered, the limits of that coverage, and the responsibilities of both the insurer and the insured. Once the policy is executed, it becomes an operative contract, and both parties must adhere to its provisions.