What factor is essential for an insurance policy to be effective?

For an insurance policy to be effective, paying premiums and completing documentation are critical factors. The payment of premiums is necessary because it represents the policyholder's commitment to maintain the coverage, ensuring that the insurer can provide the agreed-upon benefits when a claim arises. Without premium payments, the policy may lapse, leaving the policyholder without coverage.

Additionally, completing the necessary documentation is essential as it formalizes the agreement between the insurer and the insured. This typically includes the application process and other required forms, which outline the terms and conditions of the policy. Without these documents being properly filled out and submitted, there is no binding contract in place.

The other options, while potentially relevant in certain contexts, do not form the foundational basis for the validity of an insurance policy. Medical examinations may be required for underwriting but are not universally necessary. Listing multiple beneficiaries can be important for estate planning purposes but is not a requirement for policy effectiveness. Choosing a cash surrender option is a feature that relates to policy value and is not compulsory at the outset of a policy.