Which of the following statements is true regarding a binding receipt?

A binding receipt is a temporary agreement between an insurance company and an applicant that provides coverage from the moment the applicant submits the application and payment, subject to certain conditions. This type of receipt essentially allows insurance coverage to begin immediately, reflecting that the applicant is protected even before the insurer formally accepts the application.

The statement about its duration being 120 days is significant because it indicates the timeframe within which the coverage is effective; typically, this duration is set in the binding receipt itself. This aspect underscores the nature of a binding receipt, as it allows for immediate coverage for a specified period while the insurer assesses the application.

In contrast, a binding receipt is not merely a temporary insurance agreement, but rather it signifies that the applicant has immediate coverage. It does not start coverage solely at the point of application but rather provides coverage effective immediately upon receipt of the payment and the application. While some binding receipts may be referred to as unconditional receipts, it is essential to understand that the terminology can vary, and the notice of coverage for a defined period is crucial in the context of this question.