Rescission
What Is Rescission?
Rescission is the cancellation of an insurance policy by the insurer due to material misrepresentation or fraud during the application process. When a policy is rescinded, it is treated as though it never existed.
Rescission usually occurs when an insurer discovers that important information was withheld or falsified.
Why It Matters
Insurance companies rely on accurate information when issuing policies. If an applicant provides false information, the insurer may rescind the policy and deny claims.
For policyholders, this highlights the importance of providing honest and complete information during the application process.
How Rescission Works
If an insurer discovers inaccurate or misleading information, it may:
- investigate the policyholder’s application
- determine whether the information affected risk assessment
- cancel the policy and deny claims
Rescission may also involve refunding previously paid premiums.
Example
If an applicant fails to disclose a serious medical condition on a life insurance application, the insurer may rescind the policy if the omission is discovered.
Rescission vs Policy Cancellation
- Rescission voids the policy as if it never existed.
- Policy cancellation ends coverage going forward but does not erase past coverage.
FAQs About Rescission
Can rescission happen after a claim is filed?
Yes. Insurers may review applications when claims occur.
Does rescission apply to all insurance types?
It most commonly occurs in health and life insurance.
Can policyholders dispute rescission?
Yes. Policyholders may challenge rescission decisions.
Related Terms
