RESCISSION
The definition of rescission is essentially the unmaking or undoing of an insurance contract between the parties. To define rescission where the contract is a life insurance policy involves a Life Insurance company canceling or revoking your policy after you have begun paying premiums. Life Insurance Rescission results in a policy that is no longer viable (loss of coverage and therefore benefit) and will also create a nearly impossible situation in obtaining future life insurance policies. Life insurance rescission is a legal action made by an insurer if they discover the policy holder has been concealing or excluding relevant information regarding lifestyle or health conditions.
The most common reason insurance companies rescind a policy is due to the insured concealing, misinterpreting or willfully lying about pertinent information that would directly affect their mortality or the insurance company risk. The personal health and lifestyle information that the insured is required to disclose is referred to as ‘material’ and is considered vital when an insurance company decides whether or not they will accept your application and at what premium.
Two main ways to avoid the risk of life insurance rescission are to make sure you fully understand the difference between warranty and representation and also to know your timeline. A warranty in reference to insurance is considered information you guarantee to be true. Representation is referred to as information that you claim or state to be true on your life insurance application that will affect how the contract is formed. In disclosing both warranty and representation if an insurance company finds you have lied or withheld information on your application it can legally revoke your application for life insurance or cancel (rescind) your life insurance contract. As far as timeline is concerned there is a contestability period that lasts two-years from when the contract was signed with the life insurance company. If during this two year contestability period the life insurance company suspects insurance fraud or false information was provided for the underwriting process it can also investigate and try to rescind the policy.
Having a life insurance company rescind your policy will seriously affect your future ability to obtain a life insurance policy. This consequence in turn affects your family or loved ones after you are gone if there is no policy in place. Life insurance rescission almost guarantees that you will not be able to get another policy even when looking at different life insurance carriers. This is due in part to the fact that all life insurance companies have access to and use the MIB (Medical Information Board) which records policy rescissions based on health.
The safest way to avoid any risk of rescission is to disclose any and all relevant ‘material’ information when applying for life insurance. If you suffer from a health condition or have a lifestyle habit that can affect your mortality in any way it is essential that you disclose this information to your insurer during the underwriting process. It is always better to be denied a policy based on this information being disclosed up front than having a policy rescinded due to concealment. However, if you have fallen victim to policy rescission and feel you have a medical rescission case, disability or life insurance rescission issue it is best to seek advice of legal counsel.
Tags: Erisa Statute, Erisa Statute Of Limitations, Erisa Summary Plan Description
Erisa Statute Erisa Statute Of Limitations Erisa Summary Plan Description
