South Carolina insurance regulators are hearing stories about life insurers canceling life insurance policies without going through proper policy rescission procedures.
The department has sent all life insurers writing life insurance in South Carolina a bulletin about compliance with South Carolina policy rescission rules.
When a life insurer rescinds a policy, it returns the consumer’s premiums and proceeds as if the policy had never existed.
Raymond Farmer, the South Carolina insurance director, hints at the nature of the stories regulators are hearing in the description of the bulletin’s purpose.
“It has come to the attention of the South Carolina Department of Insurance (DOI) that there may be some life insurers who may be attempting to rescind life insurance policies in a unilateral manner,” Farmer writes.
In South Carolina, he writes, a life insurer can start a life insurance policy rescission based on lack of truthfulness on the application only during the first two years after the date when the policy was issued.
“After the policy has been in effect for two years, the application cannot be challenged on this basis,” Farmer writes.
The life insurer must go through “proceedings to vacate a policy” to rescind a policy, Farmer adds.
“A proceeding to vacate a policy is a judicial proceeding commenced to cancel the policy or have it declared null and void,” Farmer writes. “A letter or other notice to the insured stating that the policy has been canceled or rescinded does not qualify as a proceeding to vacate a policy under South Carolina law.”
A copy of the South Carolina bulletin is available here.
— Read State Court Rules on Calif. Rescission Rules, on ThinkAdvisor.