West Virginia Adjusters Practice Exam

In what scenario might an insurer seek to rescind a policy?

1. When a premium is not paid

2. When the insured misstates important information

3. When a claim exceeds policy limits

4. When policy terms are updated

The correct answer is: When the insured misstates important information

An insurer may seek to rescind a policy primarily when the insured misstates important information. Rescission occurs when an insurance company voids a policy from its inception, often due to the policyholder providing inaccurate or incomplete information that is material to the risk being insured. For instance, if an insured significantly misrepresents their health status on a life insurance application or fails to disclose previous claims, this misrepresentation can affect the insurer's decision to provide coverage. By rescinding the policy, the insurer reverts to the position as if the contract was never in effect. In contrast, non-payment of premiums typically activates the policy's cancellation provisions rather than rescission, as it does not necessarily involve misrepresentation. A claim exceeding policy limits usually results in the insurer paying up to the limits, rather than voiding the policy entirely. Updated policy terms typically trigger adjustments but do not warrant rescission as they reflect changes in the contractual agreement rather than a fundamental miscommunication at the outset.