Rescission

What Does Rescission Mean?

Rescission is an official declaration by a party in an insurance contract stating that they no longer recognize the contract as valid.

This typically occurs when a policyholder is found to have provided fraudulent information on their application.

Insuranceopedia Explains Rescission

Rescission can occur when a policyholder is found to have provided fraudulent information on their application. Likewise, misrepresentation or fraud by the insurer is a valid reason for the insured to rescind a contract. Life insurance is one common context for rescission, because most policies include a contestability period (usually two years) during which the insurer can void coverage if the application contained false statements. The risk is higher with no medical exam life insurance policies, since the insurer relies almost entirely on what the applicant discloses rather than on independent records.

Under the Affordable Care Act, fraud is the sole reason an insurance company can rescind a policy. Additionally, the fraudulent information must have caused an error in premium pricing.

When a contract is rescinded, the insured is notified by the insurer and receives a refund of the premiums paid. How strictly an insurer applies rescission within this period can vary, so it’s worth checking customer reviews and claims practices when comparing life insurance companies.