Life Insurance Rescission: 5,000 Policies Canceled Every Year

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 In fact, 5,000 life insurance policies are rescinded every year – saving the insurance industry billions of dollars.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 Although he had a $250,000 life insurance policy to provide for his wife, American International Group (AIG) rescinded the policy saying that he had materially misrepresented his medical history by failing to report that he was bipolar.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.

Case Studies: Life Insurance Rescission

Case Study 1: The Smith Family Tragedy 

John Smith, a 62-year-old man, held a $250,000 life insurance policy with American International Group (AIG) to provide for his wife, Sarah Smith. Tragically, John passed away from a nervous system disorder. However, AIG rescinded the policy, alleging that John had materially misrepresented his medical history by failing to disclose his bipolar disorder.

Despite evidence from Sarah, John’s doctor, and friends affirming that he was not bipolar, AIG refused to pay the claim. Sarah Smith filed a bad faith life insurance lawsuit against AIG, and the case was ultimately settled for an undisclosed amount. This case study highlights the importance of challenging alleged misrepresentations and seeking legal recourse when faced with a rescinded life insurance policy.

Case Study 2: Rising Rescission Rates 

Life insurance rescissions due to alleged material misrepresentation have been on the rise. The National Association of Insurance Commissioners reported that life insurers withheld $372 million in benefits last year alone, double the amount from a decade ago. Many policyholders are not intentionally lying or misrepresenting their medical history, yet they still find themselves in the crosshairs of rescission. This case study underscores the growing concern surrounding life insurance rescission and its impact on policyholders.

Case Study 3: Fighting Back 

To avoid the risk of life insurance rescission, policyholders can take proactive measures. Seeking legal advice and representation can be crucial in navigating the complexities of the claims process and challenging unfair rescission decisions. In the case of the Johnson family, William Johnson discovered that his life insurance policy was rescinded due to alleged misrepresentation of his smoking habits.

However, with the help of an experienced insurance lawyer, William was able to gather evidence proving that he had quit smoking before applying for the policy. The lawyer successfully challenged the rescission decision, and the Johnson family received the full insurance benefit. This case study emphasizes the importance of obtaining legal help and provides guidance for policyholders on how to protect their rights and interests in the face of potential rescission.