A formal agreement between the two parties or more that is ineffective and unenforceable for the moment is called a void contract. Once an insurance policy is void, the contract loses its legal validity.

Description:

Life insurance policy is a contract between the life insured and the life insurance company. Sometimes this contract is declared void due to multiple reasons. A void contract does not hold any validity, so it is not bound by the obligations mentioned in the policy.

When does a void contract occur? This can happen when one of the involved parties is incapable of comprehending the implications that were originally written in the contract.

In the world of insurance, the insurance company has the power to void an existing policy on grounds of misrepresentation by the policyholder. In case the policyholder hides important facts, or provides incorrect information in order to take undue advantage of the policy coverage; and the insurer finds out about this after the policy inception, then the contract is declared void. Void contracts are also known as void agreements. The life insurance coverage ceases to exist immediately after the contract goes void.

Example:

Rahul wanted to purchase a term insurance policy with critical illness cover. During the risk assessment conducted by the insurance company, Rahul did not disclose his drinking habit. He did it in order to misguide the insurance provider and enjoy a lower premium price. But after 10 policy years, he claimed to get coverage against a mentioned critical illness and submitted the documents along with the medical reports. But from the medical reports’ analysis, the insurance company learnt about the misrepresentation done by Rahul at the inception of the policy. Hence his policy contract went void and he did not receive any benefit.