Insurance companies sometimes use rescission to deny benefits to consumers, especially when a large claim is filed. The canceling of insurance policies at the time of a claim due to innocent omissions or mistakes is a growing problem for consumers who are then left without current coverage and often struggle with the ability to obtain new insurance. Consumers must be extra cautious when filling out insurance forms to help prevent having a health or life insurance claim denied due to rescission.
Consumers Bear the Brunt of Misunderstanding Forms
Although insurers are supposed to investigate, or underwrite, policy applications at the time of submission, most don’t. Instead, they approve the policy and accept the policyholder’s premium payments without verifying medical records right away. When a large claim is filed, insurance companies re-examine the answers and sometimes void the contract if any responses were misrepresented in any way. These protections were put in place to protect insurers from fraudulent claims but instead are penalizing consumers who make innocent mistakes on their initial applications or during the initial questionnaire.
To combat this, there are a few things a consumer can do when responding to an insurance application. Consumers should:
- Be completely honest when answering questions and never lie or knowingly omit information to try to get a lower premium. Companies can rescind policies and deny benefits even when the misrepresentation had nothing to do with the reason for the claim.
- Make sure the agent writes down all the answers provided. It won’t be a strong defense to claim the agent knew about the issue unless it was written down.
- Read the application thoroughly before signing it.
- Ask for clarification if the question seems broad. Misunderstanding a question won’t typically be a strong defense if an insurance company chooses to refuse benefits.
- Know whether the policy contains a contestable clause. This puts a limit on the amount of time the insurance company has to rescind a policy.
A claimant isn’t without options when insurance claims are denied. They can contest the insurance company’s rescission in writing, outlining why the alleged nondisclosure was overlooked, and they can also take legal action when insurance companies act in bad faith and claims are wrongfully denied.
