Why Insurance Claim are Rejected?

People and corporate entities are exposed to different risk on their daily lives and operation of their business, from loss of income, damage to/ or loss to their properties, bodily injury, death and liabilities for damage to other person’s property, death or bodily injury sustained by such other persons resulting from their action. But, as human being we feel comfortable when we have some degree of control to all uncertainty event, that’s why we are buying insurance to ensure that we protect ourselves against uncertainty events.

Insurance aims at provide protection to the insured when suffer loss. However, Insurance in the eye of law is the contract, is a contract in a sense that it is a binding agreement between insured and insurer where insured person required to pay some small amount of money called Premium as a consideration that insurer will indemnify once he incurs loss in the future. This binding agreement is presented in the fine print document called insurance policy.

Insurance policy is the document that evidence the insurance contract between the insured and insurer, it contains the binding terms, conditions and obligations between parties. Therefore, any insurance claim should meet terms provided in the insurance contract to be payable.

Reasons for Insurance Claim Rejection

When insured person made a claim to insurer he expecting to be compensated for the loss. This is not the case in every claim since not all claims are payable some of the claim may be rejected by insurer due to some very valid reasons. Let take an example an individual pay for a non-refundable movie ticket, when entering a theater find that people with the age below 14yrs only are allowed, the denial to watch a movie can be very devastated to the person since he paid for a ticket and expecting to watch a movie.

This scenario can relate to insurance coverage, in case of insurance cover insured pay premium to secure coverage for the perils they are exposed to with expectation to be indemnified in time of loss. Hence, when it happens the insurer reject the claim it can be very frustrating moment to insured.

In this article we will look some few reasons as to why insurance claims are rejected:

1.??????Cause of the loss not covered under the policy

Different insurance policies designed to cover specific risks for certain subject matter. Insurance contract normally has a section stipulating number of risks which are excluded for that type of insurance, for-instance Motor Insurance Policy usually do not cover any accident, loss or damage incurred while the driver was under influence of alcohol at the time of accident, damage caused by overloading or strain etc.

There are various reasons as to why insurers exclude some of the risk such as, it might be the risk is covered by other type of insurance or is available on extension basis, insurer try to limit some of the liability by reducing exposure, risk might be catastrophic in term of severity, lack of capacity, lack of reliable data to underwrite, lack of enough homogeneous exposure or its market practice not to cover such risk etc.

2.??????The property lost/ or damaged is not covered under the policy.

It may happen that the property got damage is not covered even if the peril causes the loss/ or damage is covered under the policy. For instance, under burglary policy loss of Gold or Silver articles, watches, any precious metals, articles made from any precious metals, jewelry, precious stones, medals, coins, stamp collections, coin collections, curios, sculptures, manuscripts, rare books, deeds, bonds, bills of exchange, treasury or promissory notes, bank notes or documents of any kind etc are not covered under the policy

3.??????Breach of terms and condition under the policy.

As explained above insurance is the contract and it contains terms and condition which specify rights and obligation of the parties to the contract. Breach of the terms or condition under contract by one party can give other party the right to avoid the contract or can lead the contract to be void. For instance, one of the conditions under insurance contract requires insured to ensure that all the information provided under proposal form or during taking out the policy are true and complete to the best of his knowledge and belief. Therefore, if the client provides any false information or conceal any information which is relevant to such insurance, insurer may have a right to deny the claim if such information induces the insurer to provide such insurance cover.

4.??????Fraud.

Fraud is the one of major reason for rejection of many insurance claim. Fraud is act of a criminal deception to someone else with intention to obtain financial or personal gain. Insurance fraud can happen in many ways;

·????????An insured person intentionally inventing a loss event that never took place eg. Car accident which did not happened.

·????????Deliberately creating an insured event eg. Burning your own car or house.

·????????Deliberately exaggerating the number of items lost or damaged for the genuine reported loss eg. Exaggerating items stolen during a genuine burglary.

·????????Deliberately exaggerating the impact of the honestly loss event.

5.??????Expiring of the policy period.

Insurance contract normally run a for defined period of time, normally for a period of 12 months, however there some policy runs for more than 12 month such life insurance and some of engineering classes of insurance. Because the contract defines the period of its binding between parties, insurer therefore will compensate the insured for the losses happened during such period, any loss that happened before or after insurance period will not be covered. However, there some class of business such as Professional indemnity insurer extend to cover for the losses that happened before inception of the policy but the cover will not be exceeding the retroactive date and the claim must be brought to the knowledge of insurer during policy period.

6.??????Failure to pay for the premium.

One of the requirements for any valid contract there must be consideration to contract for both parties. Consideration is something of value or price that support the promise, it can be either a benefit to the one promised or detriment to the one promise. In insurance contract, the insurer provide consideration in terms of promise to indemnify the insured when incur the loss caused by peril insured against while insured pay small amount of money called premium for the cover. Hence, a promise by insurer and premium from the insured are considerations to the insurance contract. Therefore, failure to pay for the premium by an insured person means the contract will lack one of the very important elements of valid contract, in other words the contract from inception will be invalid, hence insurer will not be able to proceed with your claim.

7.??????Failure to report claim on time.

When a loss occurs, the insured person is required by policy terms and condition to notify the insurer for such loss on specified notice period as provided under the policy or providing notice within a reasonable time. Normally, insurance policy contains a time frame let say 24 hours period where insured is required to provide notice of claim to insurer, if the Insured fails to comply with the time frame the insurer may have the right to deny the claim as this condition is precedent to liability of the insurer.

What you should do to avoid rejection of insurance claim?

As explained above insurance is a contract of service which depends on some contingents/ happening of the loss/ or damaged caused by peril insured against, and its only at the time of claim is where you will be able to measure the value of insurance service you have purchased. Hence, it a duty of the insured to make sure he/she exercise is duty and obligation under the insurance contract to avoid unnecessary rejection of the claim. The following action can be taken to insure your claim is not rejected when you incur loss as insured person;

?Written by:

Salum Mlaponi, Dip CII.??