In claim payments, what is the main difference between checks and bank drafts?

In claim payments, what is the main difference between checks and bank drafts?

• A. Only checks may be used for claim payments in excess of $10,000.
• B. With a bank draft, the bank must verify that the insurer has authorized payment.
• C. With a check, the bank must verify that the insurer has authorized payment.
• D. Only bank drafts may be used for claim payments in excess of $10,000.

Answer: (B)

Bank drafts and checks differ mainly in guarantee and authorization. A bank draft is a payment instrument that the bank issues on its own funds after verifying that the insurer has authorized the payment. This bank verification guarantees the funds and provides the recipient with assurance that the payment will be honored. In contrast, a check is drawn on the insurer’s own account and may be processed or honored based on the insurer’s funds at the time of presentation; the bank’s role is not to verify authorization before issuing the payment. Therefore, the defining difference is the bank’s verification of the insurer’s authorization for a bank draft, making the payment effectively guaranteed by the bank. This is why the correct answer states that with a bank draft, the bank must verify that the insurer has authorized payment.

Bank drafts and checks differ mainly in guarantee and authorization. A bank draft is a payment instrument that the bank issues on its own funds after verifying that the insurer has authorized the payment. This bank verification guarantees the funds and provides the recipient with assurance that the payment will be honored. In contrast, a check is drawn on the insurer’s own account and may be processed or honored based on the insurer’s funds at the time of presentation; the bank’s role is not to verify authorization before issuing the payment. Therefore, the defining difference is the bank’s verification of the insurer’s authorization for a bank draft, making the payment effectively guaranteed by the bank. This is why the correct answer states that with a bank draft, the bank must verify that the insurer has authorized payment.