Chartered Life Underwriter Practice Exam 2025 - Free CLU Practice Questions and Study Guide

A life insurance policy typically becomes effective when the premium has been paid and the policy is issued. This is crucial because the issuance of the policy signifies that the insurer has reviewed and accepted the application based on the risk presented. The payment of the premium ensures that the coverage is activated and that the insurer has a financial commitment from the policyholder.

To elaborate, while submitting the application (as stated in the other options) initiates the process, it does not establish coverage. Simply signing the policy by the agent or waiting for the policy document to arrive does not create an obligation on the part of the insurer. Coverage is contingent upon the insurer's acceptance of the application and the payment of the premium, solidifying the contract between the insurer and the policyholder. Hence, the combination of these two actions—premium payment and policy issuance—marks the official start of coverage under the life insurance policy.