A producer has taken an application for an individual Disability Income policy, collected a premium, and given the applicant a conditional receipt. What is CORRECT about this situation?

In this scenario, the producer has issued a conditional receipt, which indicates that coverage may be in effect as of the date of the application, provided certain conditions are met. "Conditional" means that if the applicant meets the underwriting requirements, the coverage will begin on the date the application was completed, rather than when the policy is formally issued.

This situation reflects a common practice in the insurance industry where conditional receipts are used to provide applicants some immediate assurance of coverage while still allowing the insurer to assess the risk associated with the application. The receipt creates a form of temporary coverage, contingent upon the applicant being approved after underwriting processes.

The other options do not capture the essence of how conditional receipts function. Coverage is not guaranteed without approval, premiums might not be refundable based on specific company policies, and underwriters are typically involved after an application is received, but the conditional receipt implies provisional coverage rather than a need for prior approval.