Void Contract

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Definition:

A void contract is not just temporarily unenforceable. It is unenforceable without legal effect from the beginning or becomes so later. Once an insurance policy is void, the contract loses its legal validity and cannot be enforced by any party.

Description:

Life insurance policy is a contract between the policyholder and the life insurance company. This contract may be declared void under certain circumstances. A void contract does not hold any validity, so it is not bound by the obligations mentioned in the policy.

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

A contract may also be void-ab-initio i.e., invalid from the beginning where the life insurance policy. In the world of insurance, the insurance company has the power to void an existing policy on grounds of misrepresentation and/or concealment of material facts 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. 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 was declared void due to misrepresentation, and he did not receive any benefit.

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