Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jun 19, 2018

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Life insurance rescission is more common than you think. In fact, 5,000 life insurance policies are rescinded every year – saving the insurance industry billions of dollars. The term “material misrepresentation” is often used by insurers when they simply don’t want to pay – but you can fight back.

Life Insurance Cancellation: A Big Business

Although many people find insurance matters confusing, they’re actually quite simple. In its most basic terms, someone applies for an insurance policy to cover a specific risk such as a car accident, sickness or to protect family members in case of death. The insurer underwrites the claim – meaning it reviews the applicant’s information – then issues an insurance policy for which the policyholder pays a premium. That’s it. Or at least, it should be.

The insurance industry doesn’t always play fair. In fact, life insurance cancellation over pre-existing conditions is a big business – and becoming bigger. According to the National Association of Insurance Commissioners, life insurers alone withheld $372 million last year alone – a number which has doubled over the past ten years – and can be attributed to policyholders misrepresenting, or omitting, medical history on their applications. The only problem is that most policyholders aren’t lying…

Life Insurance Material Misrepresentation

Life insurers often rescind policies over “material misrepresentation” – which means that the policyholder neglected to tell the insurer something important concerning their health history. While it’s essential for this “out” to exist due to fraud, the industry has taken it to an extreme and it now accounts for two third’s of all life insurance rescissions.

The Chicago Times recently reported on the death of a 62 year old man who died from a nervous system disorder. Although he had a $250,000 life insurance policy to provide for his wife, American International Group (AIG) rescinded the policy saying that he had materially misrepresented his medical history by failing to report that he was bipolar.

However, according to statements sent to AIG from his wife, and doctor, and friends – he wasn’t. However, AIG still refused to pay the claim and his widow filed a bad faith life insurance lawsuit which was later settled for undisclosed amount.

How To Avoid Life Insurance Policy Rescission

Here are some tips on how to avoid life insurance rescission:

  • Choose a life insurance company with a good reputation.
  • Be honest about your medical history on your application.
  • Pay your insurance premiums on time.
  • Understand that insurers in most states only have two years to rescind after a policy is signed.
  • Seek the advice of a bad faith insurance lawyer if you’ve been wrongly denied valid life insurance benefits.