We all pay for insurance and most of us just expect that claims will be paid when we file them. However, insurance is a legal contract and payments will be made according to the contract. Here are some common reasons claims might be denied:
- The coverage was not accepted. If an agent offers coverage but the client declines it then that claim will be declined. Make sure to ask your agent about different coverage options being offered. Understand any coverage you want to decline thoroughly so that there are no surprises. This happens most often with things like Sewer Backup, Medical Payments, and things that might not seem important but raise the cost of insurance. Sometimes these options won’t show up on a quote or declaration page and it requires an agent to explain the details.
- The policy is written that way. The declaration page or the quote does not tell the whole story. That’s why insurance policies are 30 – 50 pages long. A named perils policy will not cover things that an open perils policy will cover. The quote page looks the same, but the coverage is vastly different. Sometimes auto insurance is cheaper because a company puts in a “step down” provision that reduces coverage if a driver is not listed on the policy, like a friend or neighbor who borrows your car.
- The limits are too low. If you bought your home 10 years ago and have never reviewed your policy it is likely that there is an “inflation protection” provision of 2%-4% to try to keep the limits high enough. However, these automatic increases are rarely correct after several years. A home that could be built for $150K ten years ago might have been upgraded over time so that now it might be $250K today to rebuild it. With a 2% inflation protector that policy will only pay $183K. Similarly, with car insurance, the greatest insurance company in the world is not going to pay more than the limits on the policy. If you buy state minimums, that is what you will get.
- Business use on a personal policy. Things like delivering pizza or storing a backhoe in your detached garage might seem pretty minor. They are things that will invalidate your insurance and cause claims to be denied. Any business use of a separate structure makes that separate structure a business use exclusion to your personal home policy. Delivery is excluded on a personal auto policy. These are things you need to disclose to your agent to see if there is coverage available in some other way.
The lesson here is to find a knowledgeable agent who explains the coverages, not just the price and the deductible.