West Virginia State Life Insurance Practice Exam

Which statement about insurance policy rescission is accurate?

1. Rescission can be applied retroactively

2. Rescission allows continued coverage

3. Rescission is only allowed with policyholder consent

4. Rescission must take place within one year of issue

The correct answer is: Rescission can be applied retroactively

Rescission in the context of insurance policies refers to the cancellation of a policy by the insurer due to material misrepresentation, concealment of facts, or even fraud by the insured at the time of applying for insurance. The accurate statement regarding rescission is that it can indeed be applied retroactively. This means that if the insurer discovers pertinent information that was not disclosed or was misrepresented, they can void the insurance policy as if it never existed, affecting all aspects of coverage from the date of issue. This principle underscores the fundamental aspect of the insurance contract, which is based on the good faith of both parties. The insurer relies on the information provided by the policyholder to assess risk and determine coverage provisions. Therefore, if critical information is omitted or misrepresented, the insurer is entitled to rescind the contract retroactively, negating any claims made under it. While other statements might touch on elements of insurance practice, they do not accurately describe how rescission functions. Rescission does not allow for continued coverage, does not necessitate the policyholder's consent, and there is typically no strict time frame of one year within which rescission must occur; rather, it is contingent on the discovery of the misrepresentation at any time during the policy