An insurance policy is a contract in which one party agrees to indemnify another against a predefined classification of risks in exchange for a premium. Depending on the agreement, the insurer may pledge to financially shield the insured from the loss, damage, or liability stemming from some occurrence. An insurance contract will almost invariably restrict the amount of financial protection possible.
Almost everyone has an insurance policy, whether it’s vehicle coverage, health coverage, or other insurance, but how much do we comprehend about our policies and what they cover? Some aspects of insurance policies are universal, such as the declarations section specifying who is insured, the risks or property covered, the amount of coverage, and other formal information.
But regardless of the kind of insurance product, they all take the form of a legally binding contract. It’s essential to have the proper coverage and avoid paying for something you may not need.
Companies specialize in many various kinds of insurance. Although some insurance, like car insurance, is required by law, others are optional. It is essential to get familiar with the options to safeguard yourself from liability, even if the insurance is optional.
In their actions to cut costs, insurance companies are increasingly likely to revoke your policy when you file a claim – rather than pay out – particularly if the coverage is for a large sum. Rescission of insurance policy is an approach by insurance companies that has become a significant problem for consumers, particularly in health, life, disability, and malpractice insurance.
Although the insurer who cancels, under those circumstances, must refund the premiums paid over the policy’s lifetime, the consumer is left without insurance and will find that it’s more challenging to get a new policy.
Although a policy is a contract, an insurance company can lawfully revoke the policy if it finds that a policyholder lied or failed to disclose relevant information before the agreement was signed.
Rescission of insurance policy can occur for nondisclosure of a driving violation on an auto insurance policy, a medical condition on a health, life, or disability policy, or pending litigation on a malpractice insurance policy.
Insurers are supposed to “underwrite” or investigate policies at the time of the application to decide if the consumer is qualified. But in practice, most insurers had approved policies and accepted policyholders’ premiums – and checked medical and other records only when a claim was filed. This technique is called “post-claims underwriting.”
Now, the insurer is more likely to go back and look for any defect in the original application and contract so it can cancel the policy. It can search through confidential materials such as computerized data and various medical records to support the rescission of an insurance policy. The policyholder gave the insurer consent to do this when they signed the application.
By studying these records, an insurer may learn about conditions or medical treatments you disclosed to your physicians or attorneys but did not mention on your insurance policy application.
If an insurance policy is rescinded, instead of canceled or terminated, it will be as if the contract between the policyholder and the insurance company was never made. Instead of canceling the policy midway, the policyholder will go back and begin from the start, as if they never had the policy. This means the policyholder should get back any premiums they expended to the insurance company. By disparity, when a policy is canceled, the only money refunded is for the remaining amount of the term.
Rescission is generally done by the insurance company and involves:
- Giving notice of the rescission to the insured
- Repayment of any premiums
