Any time you file an insurance claim, you’re at risk of having it denied. Insurance companies are notorious for finding ways to avoid paying out what they owe. This can be especially true when it comes to property insurance claims. Here are ten of the most common reasons an insurance claim can be denied and what you can do about it when this happens to you.
In what circumstance would a property insurance claim be rejected
Many factors can influence the decision to accept or reject a claim, including the amount of damage done to the property. A property insurance claim is generally accepted if it meets the policy’s requirements. However, there are some circumstances where a claim may be rejected.
1) You failed to report the loss promptly
If you don’t report a loss right away, you could be denied coverage. Every insurance company has a procedure to follow in case of a claim. A delay in reporting could mean your claim is delayed or denied.
Even if it’s not denied, a company may ask for additional information and documentation (e.g., photographs of property damage) to promptly process your claim. It doesn’t matter if you were planning on making a claim—you must notify your agent as soon as possible when there is damage to your property so that it doesn’t get destroyed by further events such as weather or fire.
2) The insured item was used in illegal activity
Your homeowner’s insurance policy doesn’t cover any illegal activities at your house. Any items used in a criminal act are generally not covered by your insurance policy, so you probably won’t get compensated for losses associated with them if you have any involvement in those acts.
The insured item was partially or wholly destroyed: As odd as it sounds, some homeowner’s policies don’t pay out for damages if only part of your home was damaged in a disaster or theft. You will likely be expected to make up for such losses and would need to put money aside as savings.
3) You didn’t use the utmost care in protecting the insured item
It’s easy to forget that you have insurance coverage on your personal belongings. If you don’t take precautions to protect yourself, such as securing a valuable painting in a secure location instead of leaving it out and exposed, insurers will deny your claim if it gets damaged.
You didn’t maintain up-to-date documentation
Documentation helps prove value when you file a claim. If your documentation is outdated or wasn’t updated after purchase, it may not be accepted by insurance companies.
You don’t pay your bill
When you don’t pay your premium on time, insurers could decide to drop you as a client because they assume that customers who can’t meet due dates for payments likely won’t pay for claims either.
4) You had prior claims denied or were late paying your premium
Lying on your application is a fraud, which can get you arrested. Some companies also check references and credit reports to look for red flags. Paying late or not paying are both pretty clear reasons why a claim might be denied.
Still, another common reason gets less attention: making many claims in a short period of time. If you have three floods or five claims for wind damage in five years, you may be swimming in rejection letters. This is true if you used more than one company during that time; they share information, so only one will likely take a chance to insure you if you’ve filed many claims with others.
5) You didn’t tell the truth about something material
This is one of a handful of reasons your claim could be denied. Suppose you lied on your application or omitted any relevant information. In that case, your claim will most likely be rejected, and you’ll be responsible for paying back any money that’s been paid out. Insurance companies often ask for proof to support any information you’ve provided; if you can’t provide that proof, they may reject your claim.
6) You broke the policy conditions for filing and payment
While all insurance policies are designed to protect against certain types of risks, there are often several specific conditions that must be met for your claim to be paid. For example, many policies require you to repair or replace damaged items within a specific time frame before filing a claim.
Most home insurance policies specify that some types of damage—such as broken windows caused by storms—must be reported within a certain amount of time (sometimes immediately) if you want your claim approved. If you break these rules, the chances are good that your claim will be denied. Also, don’t even think about filing a fraudulent insurance claim; it’s illegal and can land you in jail.
7) The policy lapsed, and you weren’t aware of it
You haven’t taken basic steps to protect your property and make it more difficult for thieves to steal. In many cases, your insurer will want you to invest in security devices, such as locks and alarms before they issue a policy. If you don’t take such precautions and then file a claim because of theft or damage to your home, you could have trouble getting compensated for it.
Your home is worth less than what you owe on it: If your home is underwater, if its market value falls below what you owe on it, you might have trouble getting coverage from some companies. You can still apply for insurance coverage on several smaller policies (personal property), but not typically comprehensive coverage like fire insurance.
8) The costs exceed what you have paid in premiums over time
An insurance company is a business. It collects money in premiums from customers but doesn’t want to lose it, so it has to pay out as little as possible. Most companies will look at whether your claim costs exceed what you’ve paid in premiums over time. If it does, it may reject your claim because you are likely to make additional claims in future years, and they don’t want to take too much of a loss.
9) The company determines that you haven’t taken reasonable steps to limit your losses
If you let your fire insurance policy lapse and your house burns down, you will have a tough time getting reimbursed. The claim might be denied based on material misrepresentation. They might reject it if you lied about where you live when filing a homeowner’s insurance claim. You made a fraudulent or deceptive statement to obtain coverage. Falsely claiming that your dog is part wolf and will protect your home from burglars isn’t going to help your case if someone breaks in—or helps themselves to some valuables—when Fido is napping.
Your liability coverage has been exhausted. If you had $500,000 in liability coverage and accidentally injured someone while driving drunk, the injured party could sue for damages up to that amount.
10) Filing an insurance claim could put you at risk from other parties
As you might expect, filing a claim on your homeowner’s insurance can have repercussions that extend beyond your damaged property. One of those potential problems is an increased risk of liability from third parties—people who weren’t involved in or at fault for your original claim but still suffered losses.
For example, if you file a fire damage claim and then discover that lead paint may have contributed to some of your property damage, you could be liable for replacing other people’s belongings. In general, keep in mind that an insurance company paying out on a claim doesn’t mean they agree with how it was filed; underinsured or uninsured parties can still come after you for reimbursement later on.
Bottom Line
In conclusion, if you have a claim, the insurer may reject your claim for any of the following reasons:
• You did not provide sufficient information to the insurer at a loss.
• The insurer does not believe that you are at fault.
• The insurer does not believe that an event covered by your policy caused the damage to your property.
• The insurer believes you have made a material misrepresentation in connection with the claim.