The obvious downside to rescission is that the policyholder does not have the insurance coverage for the loss. He thought that his car would be covered in the accident, but the policy is rescinded and now he is stuck with no car and no insurance. Sometimes he is also stuck with a sizeable car loan.
Sometimes it gets even worse.
Sometimes we are legally required have a particular type of insurance and face penalties for failure to comply with the law. If the policy is rescinded, it is “void ab initio;” it’s as if it was never issued. Now, the person thought he was covered, but not only does he not get the policy benefit, he faces the penalties for having not had insurance.
This isn’t a PIP course, but it’s an easy example. In Michigan, in the event of an accident there are all sorts of penalties for failing to have the required car insurance. If the policy gets rescinded, those penalties are very real.