Insurance Insurance Basics Personal Finance

Most Common Reasons Insurance Claims Are Denied

Written by Frank Addessi

Sooner or later you’re going to have a claim denied by an insurance company. The best way to avoid having a claim denied is to not give insurance companies reason to reject your claim in the first place. Here are the most common causes of denied claims that you need to avoid:

All Types of Insurance

1. Cancelled or Lapsed Coverage

This is the leading cause of insurance claims being denied for all types of insurance. There is usually no wiggle room or grounds for appeals in these cases. The reason is that all forms of insurance are contracts, and both you and the insurance company have obligations under the contract. The insurance company is required to protect you from risks and you are required to pay them on time. If you haven’t been holding up your side of the bargain, state insurance departments and courts recognize that you broke the contract and will do nothing to help you.

Where this gets tricky is when something called the “grace period” comes into play. The grace period is the amount of time after an insurance payment is due that the policy still remains in effect. For example, if your policy has a 7-day grace period, you can miss your payment deadline for 7 days before your policy is cancelled. If you have an insurance claim that occurs during these 7 days and you don’t ever make that payment, your policy will be cancelled and that claim will be denied.

2. Wrong Policy Number

No insurance company will process your claim without an accurate policy number. If you are told that your insurance claim has been denied because you don’t have coverage, don’t panic. Contact your insurance agent or the insurance company using the phone number on your insurance card and ask for the exact reason you have been denied.

Start by confirming that the all of the information on your claim exactly matches the information on your policy or insurance card. Make sure that dashes, dots, spaces and upper and lower case letters are exactly the same. Make sure you filed your claim with and are following up with the right insurance company. Some insurers have different affiliates with very similar names for different types of insurance such as homeowners and life insurance.

Health Insurance

1. No Pre-Authorization

Many health insurance plans require that your care be coordinated, or “pre-authorized” through your primary care physician. Rules regarding pre-authorization vary from one plan to another and can be very strict.

For example, if you fall off a ladder and are pretty sure you broke your arm, you may still have to go to your primary care physician before visiting an orthopedist. Pre-authorization can also apply to testing procedures like MRIs or CT scans.

Sometimes insurance claims are denied for no pre-authorization even though your doctor gave you a written prescription or referral. This is because your doctor’s office did not follow procedure on their end and get a pre-authorization number. In these cases, contact your primary care physician to obtain this number for your claim.

2. Services Not Covered

In most cases, your physician or other health care provider should let you know in advance that a service is not covered by your insurance. If decide to go ahead and have the procedure anyway, then you will be responsible for the cost.

If your claim is denied as not covered for a reason other than being expressly excluded, ask that your provider appeal the decision on your behalf. Most health care providers have patient advocates and billing specialists that have a lot of experience in dealing with insurance companies that refuse to pay. However, if they are unable to secure payment of your claim, contact your state’s insurance department for further assistance.

3. Out of Network

Members of HMO’s are the most frequently affected by this cause of claims being denied because HMO’s require virtually all care to be coordinated through a primary care provider. If you receive emergency or elective care outside your HMO’s network, you may be denied or have to pay a much larger percentage of the cost. The best way to avoid being denied is to check with your primary care provider before agreeing to any services.

4. Wrong Company Billed

Even if you do everything by the book, someone else can make a mistake that causes your insurance claim to be denied. Sometimes these mistakes are clerical errors made by a provider’s billing department, other times they are made because your doctor has outdated insurance information on file. The good news is that these errors can be fixed by confirming your current insurance carrier with your doctor’s billing department.

Homeowners Insurance

1. Peril Not Covered

One of the most common misconceptions homeowners have is that their insurance covers any damage to their home. In reality ,homeowners policies are often written to protect against a list of specific named perils. If a peril is the direct cause of the damage to your home, and that peril is not listed in your policy,  your claim will be denied. In the case of “all perils” policies, all perils are covered with the exception of specific ones that are excluded. In both cases, you can add additional coverage to your policy to cover perils like flooding.

2. Negligence

Your claim can also be denied if the insurance company believes that the damage to your home was caused over time and could have been prevented by regular maintenance. Unfortunately, there can be times when the line between negligence and a covered peril are not always clear. For example, if your home is damaged in a windstorm that is covered by your insurance and adjusters also find termite damage. The insurance company may deny your claim because your negligence in not eliminating the termites weakened your home and allowed the wind to do the damage.

3. You Lied

When you file a homeowners claim, the insurance company will check your original application for errors or omissions. They want to verify that what you are seeking payment for was listed and described accurately when you first got the policy. Your claim can be denied for any number of inaccuracies, ranging from you reporting an incorrect size of your home, or not mentioning your home-based business.

Automobile Insurance

1. Unlisted Driver

As part of your application for auto insurance you are asked to list all of the drivers in your household.  You may even have to list anyone who lives in your home that is over the age of 14, even if they don’t have a driver’s license. If someone lives in your home, is not listed on your insurance policy, and has an accident while driving your car, your claim will be denied. Keep in mind that if someone living in your home gets their license after the policy has been issues, you need to report this to the insurance company.


2. Business Use

Insurance companies charge higher premiums for vehicles that are used for business. Driving your car to and from work is not business use, it’s commuting. However, if you make stops as part of your job (even if it is on the way to and from work), your commuting then becomes business use. If your insurance company determines that you use your vehicle for business purposes and you file a claim, it may be denied. Your claim will be denied even if the damage occurred while you were operating the vehicle for personal use. The only way to avoid this is to add a business use endorsement to your policy.

3. Injury

Claims for injuries sustained in car accidents may be denied for several reasons. One of the most common reasons is that the injury was not reported at the time of the accident. This reason is most often used when you are not transported to the hospital by ambulance after an accident. The insurance company’s position may be that the injury did not occur in the accident but after. Injuries that are not listed in police accident reports may also be contested as not severe enough to warrant reporting. Finally, insurance companies will sometimes deny claims for injuries based on the premise that it was a prior injury. This can happen if for example you have a history of back problems and are claiming your back was injured in an accident.

4. Suspended or Expired License

If you’re not licensed, you’re not insured. Insurance companies will almost always deny claims where the driver did not have a valid license. That includes the policyholder. If for example, your license expires on a Monday and you are driving to the DMV on Tuesday to renew it and you have an accident, chances are your claim will be denied.

Life Insurance

1. False Information

By far the most common reason for life insurance claims to be denied is material misstatements. In plain English that means lying or providing incorrect information on the application for insurance. The most common lie is about tobacco use, followed by undisclosed medical conditions. Insurers can refuse to pay a death benefit even if the cause of death is completely unrelated to the material misstatement on the application. That means that if you lie about smoking and you die when a tree falls on your head, your beneficiary’s claim may be denied.

2. Foul Play

While death by murder is covered by most life insurance policies, claims may be delayed while there is a question about the killer’s identity. This is especially true if you are murdered shortly after the policy was issued. Of course the claim will be denied if your killer is also your beneficiary, regardless of how long the policy is in effect.

3. Uncovered Cause of Death

While some life insurance policies have done away with exclusions for dangerous hobbies, many still exist. Common exclusions include acts of war which can result in a claim being denied for active duty service members who are killed in the line of duty. One exclusion that has not gone away is suicide. The suicide exclusion usually remains in place for the first one to three years (depending on the state) that a policy is in force.

About the author

Frank Addessi

Frank Addessi has been a serial entrepreneur and a licensed insurance agent for more than 20 years. He writes primarily about personal finance, small business and all types of insurance. His work has appeared on websites such as Smart Asset and The Simple Dollar. He can be found on his website

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