It can come as a shock then when a home insurer denies a claim or doesn’t pay out the full amount requested.
For most people, their home is the most valuable item that they own. They do everything they can to protect it and retain its value, and if an unexpected event occurs, they expect their homeowner’s insurance policies to help them cover the damage.
This situation may make you question the point of having a home insurance policy in the first place! It’s important to keep in mind the business model of an insurer. If they approved every claim, they wouldn’t be in business for very long.
The good news is that an insurance claim decision isn’t necessarily final.
We’ll help you learn more about how insurance companies make their decisions and what you can do to influence them.
Why Did This Happen?
When you’re a frustrated homeowner dealing with damage to your house, it may seem like your insurance company is making decisions on a whim. However, with years of experience and troves of data, insurance companies make very deliberate decisions. When they issue denials, they almost always come down to these very basic reasons:
The claim is outside the scope of the policy
There are a few main ways that claims can be outside the scope of a standard home insurance policy
Homeowners insurance covers most kinds of damage to your home: vandalism, fire, even being hit by a meteor in some cases. However, some hazards are excluded: namely earthquakes and floods. If you live in earthquake or flood-prone areas, you will need a separate insurance policy that specifically covers those types of events.
There are also parts of your house may not be covered by your homeowner’s policy, such as a covered patio, a gazebo or a fence. These additional structures may be covered at up to around 10% of your home structure coverage. Depending on your policy, they may not be covered at all. It’s a good idea to check what your policy will cover before you have to file a claim.
Wear and Tear
Parts of your home require regular maintenance. For example, replacing your roof or your air conditioner handler. Insurance will not cover the cost of replacing these things simply because they’re old or worn out. While they may sometimes cover additional damages caused by a failing roof or old pipes, you’ll still have to pay to replace them.
The damage is due to negligence
Insurers expect homeowners to perform some level of preventative maintenance on their houses. If you have a leaky roof that you have chosen not to repair over a long period of time, don’t expect your home insurance carrier to cover claims related to water damage or mold. If something in your house breaks, your homeowner’s insurance requires you to act quickly and address the problem. It’s when damage is allowed to fester and get worse that it can become negligence.
The damage is outside of the coverage period
The date that you file a claim is rarely the same date that the incident occurred. Insurance companies will reject claims for events that before your coverage period began or after it has ended, regardless of when you actually filed the claim. Also, depending on your policy, there may be time limits to when you can report the damage to your insurance company. If you wait too long, your claim may be denied.
The costs exceed your policy limits
Some insurance policies have caps on the amount that the company will pay for a claim. If the cost of damage exceeds that amount, the insurance company will pay out all the money required up until they reach their cap. But they won’t pay beyond that limit.
What should I do after a denial?
If you disagree with your home insurer’s decision, there are actions you can take.
Compare the denial notice to your policy
Before doing anything else it is important to understand your insurance company’s reasoning. A denial notice should have specific reasons why your claim didn’t meet the requirements of the policy. Compare that information with your original agreement with the insurance company. You may find that your claims are not covered or exceed the value outlined in your policy.
Examine your original claim
If you didn’t have an in-person inspection, it’s possible your claim was denied because the insurance company didn’t have enough information. Review your original claim to see how much evidence you provided. You may be able to file an appeal if you offer more relevant information about the scope of the damage.
Get a second opinion
If you believe you are justified in your dispute with the home insurance company, consider hiring a public adjuster, or an independent inspector. They will review your damages and come up with their own assessment of the damages. You can take their report to your insurance carrier and request that they reconsider their decision.
Consult a lawyer
If you believe your insurance company is operating in bad faith, you can also consult a lawyer to try and fight for your claim. These lawyers are typically free for you to hire and they handle all the legal aspects for you. They get paid only if they succeed in settling your claim. They usually negotiate a fee separate from your settlement that is paid out by the insurance company. Because of this, you’ll want to get a lawyer involved only if you have a large claim
The lawyer will evaluate whether your insurance company is acting in accordance with your policy and take your case only if they see a path to ensure your payout.
Keep in mind that your insurance company may drop you if you sue and they may stop cooperating on your claim if you bring in a lawyer. It’s best to avoid suing unless your company is acting in bad faith or you’ve exhausted all other options on your own or through a public adjuster.
File a government complaint
This is more of a last resort option, but you do have the right to report your insurance company to your state’s insurance commissioner. The state may direct you into a mediation process or recommend that you hire an attorney. You should only go this route if the amount of your claims exceeds several thousand dollars. Otherwise, this may be more trouble than it’s worth.
What can I do to prevent denials in the future?
- Submit thorough claims – Insurance companies make decisions based on the information they’re given. If you want an approval, give them as much relevant information as possible. Take pictures from multiple angles, shoot video, and provide evidence of any maintenance that you have done on your home.
- Update your insurance company of changes – If you get a pool or build an addition to your house, your insurance company needs to know. It’s unlikely that they will approve claims for parts of your property that weren’t included in the original policy.
- Increase your coverage – If you have many items that are of monetary or emotional value to you, maybe you need more than the bare minimum of coverage. It’s also important to periodically take inventory of your possessions and contact your insurance company when they change in value.