Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Nov 9, 2020

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Here's what you need to know...

  • In order for your coverage to protect you, you must meet minimum conditions
  • Coverage for a newly purchased car will extend for a period of 10 to 30 days
  • If you carry only liability and you file a physical damage claim on your car, your claim may be denied

People buy car insurance so they can use their policy in the event that they need to file a claim.

While basic policies are mandatory in almost all states, carrying insurance helps you comply with the law and gives you a peace of mind that you have a barrier of protection.

Statistics show that the average driver will have 3 to 4 accidents while they are licensed. Since the odds are so high, knowing what goes into a filing a claim and how claims are investigated is crucial.

Some companies may have special programs in place for repairs, but all claims still need to be investigated before any check will be cut.

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Table of Contents

Why do insurance companies deny claims?

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Carriers in the insurance marketplace are for-profit companies that are in business to make money.

They assess risk, collect adequate premiums based on a policyholder’s risk class, and pay out a reasonable amount of money for covered claims that are filed.

Like any smart entity that is looking to protect their assets and revenues, the company will investigate losses and research costs before they make an offer.

The company will not determine fault, extend coverage, or pay an inflated repair bill without first reviewing every detail of the claim.

Claims adjusters are responsible for investigating a loss and saving the insurer money by offering the lowest settlements and by spotting red flags that could lead to a refusal to pay.

As long as the company is going by the book and denying claims for valid reasons, it is completely legal for the company to lower its financial obligations to pay while they hold onto more profits.

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Common Reasons an Insurer Will Refuse to Pay Liability or Damage Claims

Now that you know that it is legal for a company to refuse payment for a claim when the contract allows, you might be wondering what situations can cause issues.

Some of the reasons for denial are rather obvious and others might not be for the average person.

 Be aware of every reason why you might be left to pay for damages on your own before assuming you are fully covered.

This assumption can land you in hot water and also in a civil court.

Here are the most common reasons that claimants have received a denial letter from their insurer:

No Coverage at the Time of Loss

If you failed to make a payment on your policy or you did not renew your coverage, a lapse in coverage will lead to a claim denial.

In fact, policy lapses are the most common reason that carriers do not honor claims.

Your policy must be in effect and active for any of the coverage options you carry to protect you.

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You Do Not Carry Coverage for the Claim Presented

If you carry only liability and you file a physical damage claim on your car, your claim may be denied.

Your insurer will still take the report and will represent you if a third party is involved, but no check will be cut from your own benefits.

If the other company does not deem their driver at fault, the claim will be denied on both ends.

Signs of Insurance Fraud

Insurance companies lose millions of dollars to claimants who are trying to defraud them.

There are several ways for claims reps to spot a fraudulent injury or damage claim and they are trained to do so.

If the claimant has a history of filing claims or damages, there is a chance the claim will be flagged and denied for fraud.

Driver Was Excluded From the Policy

Your policy will extend to a driver who is borrowing your vehicle with your permission but only if that driver is not excluded from your policy.

If the individual who was driving the car is not listed on your policy and does not meet the definition of permissive user, the claim could be denied.

Some insurers will cover unlisted drivers but may require you to list the driver.

Drivers License Was Not Active

If you are breaking the law when you are in an accident, there is a chance your insurer will not cover you.

In order for your coverage to protect you, you must meet minimum conditions.

One of these conditions is that your license is active and that you notify the company when it is suspended or revoked.

If your license was inactive at the time of the loss, the carrier can deny your coverage.

You Did Not Add Your Newly-Purchased Auto

Coverage for a newly purchased car will extend for a period of 10 to 30 days.

Once this period is up, no coverage is provided unless you add the new car to the policy.

If you did not notify your agent and you have a loss after the automatic coverage period ends, you will not be afforded any coverage.

If you feel like your claim was denied in bad faith, you do have the right to appeal.

You must be told why your claim is not being paid and what you can do to appeal.

You can easily use an online instant quote tool and compare rates with several companies that have a reputation for paying claims in a timely manner.

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