The principle of waiver can preserve a life insurance policy that the insurance company has attempted to cancel. In a recent court decision, the insurance company continued to receive and cash premium payments, after attempting to cancel the policy in a letter to the insured in which it alleged that a material misrepresentation was made in the policy application. Obviously, in this case, the investigation conducted by the insurance company occurred while the insured was still alive. The court held that the insurer waived its right to rescind by continuing to receive and cash the payments.
The court rejected the insurer's claim of inadvertence based on the automatic design of its computer system that continued to identify the policy as active and hence cash the payments. According to the article, if there is a rescission of the policy, the insured would have to apply again for insurance – that is, if insurance is rescinded while the insured is still alive. The insured may not be able to obtain another policy on the same terms, for instance if the insured's health declined. Under the applicable law, rescission must occur within two years of the issuance of the policy based on the incontestability provision contained in law. In sum, if an insurance company rescinds a life insurance policy within the contestability period, the insured may be advised to continue to make payments in the hope that the insurance company will cash them.
Our life insurance lawyers handle denied life insurance claims.