Connecticut Life Producer Practice exam

What is typically required for a life settlement contract to be rescinded?

1. Written notice from the insured.

2. Proof of death.

3. Submission of a new application.

4. Return of the settlement proceeds.

The correct answer is: Return of the settlement proceeds.

The correct answer is that the return of the settlement proceeds is typically required for a life settlement contract to be rescinded. This process acknowledges that the life settlement is a financial transaction in which the policy owner sells their life insurance policy for a cash amount that is less than the death benefit but greater than its cash surrender value. When a party wishes to rescind the contract, which means they want to cancel or annul the agreement, they usually must return any funds received from the settlement. This requirement is in place to ensure fairness and maintain the integrity of the transaction, as keeping the settlement proceeds without returning them could be seen as an unjust enrichment. Although other options may involve situations surrounding a life settlement or its terms, they do not fulfill the necessary condition for rescission, which is tied directly to returning the benefits received from the transaction. This principle underlines the importance of equitable practices in life settlements.