Rescission in insurance is characterized as?

• A. A The insurer cancels the policy for nonpayment
• B. B The policy is declared to be never in effect
• C. C The policy remains in effect but adjusts claims
• D. D The insurer pays out on the claim anyway

Answer: (B)

Rescission means the contract is voided from the start and treated as if it never existed. This happens when the applicant’s misrepresentation, concealment, or fraud was material to the underwriting decision, so the insurer can unwind the agreement and typically refund premiums. Because the policy is considered never to have been in effect, there’s no coverage from the outset.

That’s why this option fits best: the policy is declared to be never in effect. The other options describe outcomes that end or change coverage after the policy has started (cancellation for nonpayment), keep the policy in force while adjusting or paying claims, or simply pay a claim regardless of the contract’s validity, none of which capture the idea of erasing the policy from inception.