In most cases, when your application is taken, you will pay the initial premium payment with the application and receive the conditional receipt, if applicable.
It binds your life insurance coverage effective on the date of your application (the exact conditions vary a bit from company to company), provided that you are eligible for the coverage applied for.
For example, you apply a $1 million face amount life insurance policy, you are in excellent health on the date you applied for the coverage, and you received a conditional receipt. Then suppose you are run over by a truck the next day in an unfortunate accident.
What happens to your life insurance policy?
Even though the insurance company has not even received your application, your beneficiary will receive the $1 million, once the company underwrites the case and determines that you were eligible for the coverage.
In this example, you paid just one premium payment and your beneficiaries collected the entire proceeds.
Now suppose you have a serious heart condition, of which you are unaware. Otherwise, your situation is identical to that described above.
You apply for the coverage, get your conditional receipt, and take a medical examination the next day. On the way home, the truck runs you over and you are killed.
Since you are not eligible for the applied for coverage, the company underwrites the case, discovers your heart condition, declines the claim and returns the premium payment to your beneficiary.
That’s how a conditional receipt works.
It is, in effect, a limited life insurance agreement; good until the company can underwrite the case and make a final determination of your eligibility for the applied for coverage.