Insurance companies are paid premiums to protect policy owners from suffering financial losses by covering claims. There are instances however where insurers will refuse to pay. Insurance claims aren’t paid for several reasons, and that can leave policy owners unprepared to cover them, which can be costly. There are a few reasons why claims are denied by insurers.
Insurers can deny claims if it finds that individuals submitted false information, or misrepresentations, on their application forms. Misrepresentations come in the form of omissions or incorrect information. Applicants supply misrepresentations for several reasons such as to obtain lower premium rates or coverage altogether. An example of a misrepresentation is for an individual to omit that he smokes on a life insurance application or he has a pre-existing condition on health insurance forms.
Incident Not Covered
Policy owners may be caught off guard when insurance companies deny their claims from perils they thought were covered because of its similarities to others. Some perils require their own separate policies. For example, Business Owners Policies (BOPs) protect businesses from being sued by third parties if they were hurt or suffer financial losses after using the companies' services or products. However, BOPs don’t cover damages caused by companies' errors or professional judgments that can cause similar damages. To cover these perils, businesses would have to purchase Errors & Omissions (E&O) or professional liability insurance. Another example is homeowner's insurance, which pays for damages caused by windstorms and other natural disasters but doesn’t cover damage claims due to earthquakes and floods.
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Insurance companies will not pay for claims if the insureds were committing illegal acts when the incidents occurred. Insurers also have provisions that it won’t honor claims if injuries or other medical conditions were self-inflicted. For example, life insurance companies won’t honor claims if the insureds commit suicides within two years of the policies’ approvals. Also, individuals who suffered injuries that were self-inflicted or caused while working under the influence of drugs or alcohol can be denied workers compensation benefits.
If claims are denied by the insurers, policy owners have several routes they can take to get the decisions overturned. First they can ask their insurance companies to review and reconsider their decisions. If this approach fails, policy owners can go to their state’s insurance departments and file grievances against their insurers. Independent boards can hear the cases and if they side with the policy owners, insurers have to pay. However, appeals are time sensitive and they must be filed within a certain time period. For example, those who are appealing claims that were denied by health insurers may have only 60 days to file according to Insure.com.