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Term life insurance  Rescission

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Be careful to avoid life insurance rescission

Honesty and thorough completion of the application

It's the worst news to get as life insurance policy owner/beneficiary or term life insurance agent.   Rescission.   We need to find out what exactly does it mean in the world of life insurance and more importantly, how to avoid ever hearing it.

First, we'll start with the formal dictionary definition according to Merriam-Webster for rescinding:

1 : to take away : remove
2 a : take back, cancel <refused to rescind the order> b : to abrogate (a contract) and restore the parties to the positions they would have occupied had there been no contract
3 : to make void (as an act) by action of the enacting authority or a superior authority : repeal

Definition #2 and 3 are most appropriate for our usage.  Sometimes, people forget that the term life insurance application is a contract between the applicant and the insurance carrier.  The "offer" is made by the applicant in the form of the application.  The carrier than makes it's decision on whether to accept this offer based on the information in the application and as a result of the paramedical exam/interview.  Where rescission comes into play is if there was material information not included in the application.  Material essentially means that information would have affected the carrier's decision had they know about it.  For example, a cold from 2 years ago probably isn't an issue.  Elevate cholesterol or heart palpitations would be since they have a direct bearing on mortality and actuarial probabilities.   To be safe...be thorough.

Most term life insurance policies have a two year window to rescind a policy if they discover information was misrepresented during the life underwriting process.  This two year window usually starts from the effective date of the policy.  After this two year window, the carrier is typically without recourse to rescind the policy or not pay the benefit according to the terms of the coverage. 

As licensed life insurance agents, we strongly recommend that you must provide all your information honestly and thoroughly during the life underwriting process.  From our experience, the carriers have ways to find that information was misrepresented on the application.  Let's take an example.

John Doe decides to conceal his long, prior history of drug use.   He avoids use prior to the paramedical so that it does not show.  One year later, cocaine use causes a heart attack.  The carrier may then investigate prior claims history.  They find a panic attack ER visit years before and doctor notes reflecting drug use.  This person is in serious jeopardy of not having benefits paid out to his beneficiaries.   After the loss of a loved one, it's insult to injury to find out that the life insurance policy has been rescinded.   The carriers also have access to the MIB (Medical Information Board) which is a collection of data reflecting at a minimum, instances of fraud of misrepresentation among the carriers that participate (Medical and Life). 

If you're worried about your ability to qualify based on health history/status, contact us so we can evaluate your situation and match up the right options.  There can be High Risk insurance plans we can investigate.  Certain carrier may also be more lenient for a given issue.  That's where our experience as life insurance agents really come in handy.



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