What does policy rescission mean?

Policy rescission refers to the legal act of canceling a contract and declaring that it never existed. When an insurer rescinds a policy, it indicates that the policy is considered void from the beginning (ab initio), as if it never took effect. This action is typically taken in situations where there has been material misrepresentation or fraud on the part of the insured that would have affected the insurer's decision to issue the policy in the first place.

In the context of insurance, this can happen if an insured fails to disclose significant information that would influence an insurer's risk assessment, or if false information was provided during the application process. As a result, the insurer may choose to rescind the policy altogether instead of merely adjusting it.

The other choices do not adequately describe rescission. Adjusting policy limits relates to modifying the terms or coverage but does not imply that the policy is void. Restoring coverage pertains to reinstating a policy that was previously canceled or lapsed, which is a separate process. Transferring a policy involves changing the ownership but does not affect the validity of the policy itself. Thus, understanding rescission as declaring a policy invalid accurately captures its legal implications in insurance.