Ways To Avoid Life Insurance Rescission

What is Life insurance rescission? It is a legal move through which the insurance company
can declare the life insurance contract void or cancelled, as a result of which your policy no longer holds good. The policy may be revoked even after you have started paying premiums on it.

Why would an insurance company rescind your policy? The most common bases for rescission are concealing, lying about or misinterpreting important material information that directly affects the outcome of the underwriting procedure, and subsequent predictions on your mortality. The term material refers to a piece of information that was vital enough to have altered the life insurance companys decision on your policy application. e.g., concealing something as common as a cold is alright, but concealing tobacco usage would be classified as material information. Had these facts been disclosed at the time of buying the policy, your insurance policy would either have been rejected, or worked out at possibly higher premiums.

There are two ways to avoid life insurance rescission
Make sure you understand the difference between a warranty and a representation: A warranty is something that you guarantee to be true in your insurance application. If the life insurance company finds that you have lied about your warranty, it has the right to revoke the contract. On the other hand, a representation is something that you state in your application, and affects the formation of the contract. If your representation is found to be untrue, the insurance company can cancel the contract.
Most life insurance companies will resort to rescission if material (explained above) information was not included in the application.
Know your timeline Life insurance companies have a two-year contestability period from the time the contract was signed. If the company suspects fraud during this period, or that false information was given during the underwriting process, it can rescind the policy.
Needless to say, having your policy rescinded has serious repercussions. You may never again have the opportunity to insure yourself, and this will of course have an impact on how your family will carry on after your death. Once a policy is rescinded, there is little hope for getting another policy, even with another insurance company. Insurance companies have access to the MIB (Medical Information Board), which maintains a record of policy rescissions on health grounds. Your information will no doubt be recorded too, making it impossible for you to obtain a new policy.

The only way to avoid the risk of rescission is to include all relevant information in your insurance application. Ask yourself if a particular health condition or lifestyle habit can affect your mortality. If the answer is yes, disclose the same to your insurer. True, you run the risk of being denied a policy, or given one with an exorbitant premium, but at least you can still apply to another insurance company. More importantly, your family will not be denied the benefits of insurance.

These days, even with certain health conditions, cheap life insurance is easy to obtain from reliable, well-reputed insurance companies. Insurance agencies that represent multiple insurance companies usually have access to those insurers that look favorably on certain health conditions. These agencies will give you a free term life insurance quote based on your individual requirements, after running your details through the criteria of insurers who are willing to cover your particular health problem. At the end of the day, it is better to have some insurance than no insurance at all.