Home Insurance: Reasons why homeowners claims get denied

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Homeowners insurance is one of the best ways for people to protect their financial interest. This is especially true for those whose home is their greatest asset. When severe weather, fire, vandalism, or other events damage a home, homeowners insurance is usually the only thing standing between the owner and severe financial loss.

But there are ways insurance carriers can deny claims. Remember, the insurance industry makes a profit by paying for covered claims, so it’s in their best interest to pay only for items that are, in fact, stated in a given policy.

Below are the five most common ways claims are denied, followed by some actionable advice that might help homeowners avoid a claim denial:

1. Denial Based on Deductible Amounts

After receiving a homeowners claim denial many homeowners are surprised to discover the reason for the denial was the amount of the deductible. By far, the most common deductible amount is $1,000, but lower and higher deductible amounts exist in policies. Many insurers base common deductible amounts on a percentage of the replacement value of a home rather than a fixed dollar amount.

If your home, for example, costs $300,000 to replace, a one-half percent deductible based on replacement value would mean your deductible is $1,500. Always know your deductible amount in order to avoid an unpleasant surprise after making a claim. The key thing to remember is this: if the damage to your home, even in a covered occurrence, is less than the deductible amount, the claim will be denied based on that reason alone.

Things to remember:

  • The most common deductible amount is $1,000.
  • It’s possible to set your deductible to a low amount, but the premiums will be higher.
  • When a claim is less than the deductible amount, the claim will be denied.
  • It’s possible to have different deductible amounts for different types of coverage.

2. Denial Related to Covered Perils

A common misconception is that homeowners insurance policies cover all types of damage that can occur to a home. This is certainly not the case. For example, most policies do not cover natural flooding. Remember that it’s possible to purchase a flood policy separately, or buy an add-on to a homeowners policy that covers natural floods.

Basic and Broad Perils

The typical policy will cover 11 named perils, or the most common types of damage that a structure is susceptible to. Things like lightning and fire are in the group of named perils that are covered on a basic policy. The definition of basic coverage is a policy that insures against losses from those 11 named types of damage.

When a policy adds five additional perils to the list of named perils, the coverage is called broad. Among the five additional risks to a home, in this type of coverage, is burst pipes. Many people who live in areas where temperatures dip below freezing suffer this kind of damage to their homes. If they have broad coverage, they are insured.

Special Coverage

Among the main peril coverage in the insurance industry, the best type for homeowners is special. Under this kind of insurance, any destructive incident that occurs to a home is covered, unless it is specifically excluded by the policy.

In other words, special coverage protects homeowners, by default, against any bad thing that might happen to their home unless the event is specifically named in the policy as being an exclusion.

What’s the Most Common Type of Peril Coverage?

For most homes today, a typical policy will include special coverage for the structure of the home and broad coverage for the homeowner’s belongings. For all types of peril coverage, however, the insurance adjuster must be able to see that the damage occurred from an incident, and not from lack of upkeep or poor maintenance. Losses need to be sudden, like a lightning strike or fire, and must be the result of what insurance professionals call an occurrence.

3. Denial Based on Specific Exclusions

The most understandable types of homeowners claim denials result from occurrences that are specifically excluded on a homeowners policy. Virtually anything can be written in as an exclusion, but the four most common items that are excluded from coverage are:

  • Acts of War
  • Earthquakes
  • Natural Flooding
  • Brush Fires

4. Denial Because the Liability is Elsewhere

Homeowners insurance policies can cover losses that are suffered by other people and have been caused by the homeowner. However, when the liability or responsibility for the loss rests with someone other than the covered homeowner, the insurance company is not obligated to pay for the damages or losses.

The most common example of this situation involves service personnel who come onto the homeowner’s property to do work of various kinds, like tree trimming, paving or lawn mowing. If the┬áservice person causes an accident that harms the property, it is the responsibility of the service person’s insurance company to reimburse the homeowner for the monetary value of the loss.

5. Denial Because the Event is Maintenance-Related

Insurance policies are designed and written to cover “incidents” that cause damage. In the insurance industry, these events, also known as “occurrences” are quite different from the damage that results from the passage of time, common use, and day-to-day life.

In the auto industry, the term “normal wear-and-tear” is sometimes used to indicate the erosion of the vehicle over time and through normal use. Homes also “wear out” as time passes. Roofs get old and begin to leak. Walkways break apart and need repair. Walls crack after a certain number of years.

Claims can be denied when insurers are able to show that the loss was the result of wear-and-tear on the structure and not the result of an incident or occurrence. A fire is an occurrence. The fire damage would be covered under most homeowners policies. A poorly-maintained roof that needs to be replaced is a maintenance problem that would not be covered.

How to Avoid the Problem of Homeowners Claim Denial

Even though insurers have their methods for denying claims, there are actions homeowners can take to avoid denial of claims. Based specifically on the five types of homeowners claim denials listed above. Here are the things you, as a homeowner, can do to make sure your claims get reimbursed as often as possible.

Set Deductibles at Reasonable Levels

In order to avoid being surprised by a denial of coverage based on deductibles, homeowners should carefully inspect their policies to be sure that each separate deductible is set at a level they are comfortable with.

Many people do not realize that different parts of a policy can carry their own, different deductibles. For example, there can be a general deductible amount of $1,000 for most occurrences on the policy but a separate deductible of $2,000 for hail/wind damage.

It’s important to do a thorough review of your policy so you know what the deductible is for each portion of your policy. You might have checked a box or signed a form when you first took out the policy that set a default amount for various categories. Review the policy and make sure all of the dollar amounts make sense to you now. Things may have changed since you first purchased the policy.

Get a Special Policy That Covers All Perils

Special peril coverage is pretty standard on homeowners policies in the U.S. Some insurers still write policies that are basic or broad when it comes to this kind of protection. Look at your policy and make sure it has special coverage. If it does not, ask your Agent to upgrade the policy to that status.

For most homeowners, the added cost for upgrading a policy to special is not too costly — and the peace of mind is well worth the price.

Add Coverage for Typical Exclusions Like Earthquakes and Backed-up Water Damage

Being denied based on an exclusion can be a tough thing to take, especially when your home has been badly damaged by some occurrence that is on your policy’s exclusions list, like earthquakes or floods.

What’s the solution? In order to minimize the risk of having a claim denied based on exclusion, do your best to add specific occurrences into your homeowners policy. Many people choose to pay the additional premiums for earthquakes and water back-up. This makes good sense if you reside in areas where earthquakes are prone to happen and where water damage is a common thing.

There are other things to think about adding, particularly based on risks that are commonly associated with certain geographic areas. It’s a good idea to research the region where you live and find out what some of the most common types of damage is. If floods and hurricanes are a threat, consider adding a related type of coverage to your policy. In many cases, adding special types of coverage can be quite costly, so it’s a judgment call for many homeowners as to whether the added protection is worth the higher premium cost.

Make Sure Workers on Your Property Have Liability Insurance

Before hiring someone to come over and mow your lawn, trim your trees or do anything on your property, make sure they have liability insurance that covers any damages they might cause. Your homeowners policy will not reimburse you for losses caused by someone else who shows up to paint your house, fix your roof or repair a broken garage door, In fact, whatever type of service a person visits your home to perform is a possible opening for a denied insurance claim.

Insurers routinely deny claims like these and the only way for homeowners to be protected is to ask and verify that the service worker has liability coverage of their own.

Stay Current on Home Maintenance Tasks

What is the best way to avoid having to pay for maintenance-related damage to your home? Keeping it in good shape and having major components regularly inspected are probably the two most effective things.

Many homeowners have annual roof inspections done by professionals. The same goes for plumbing and other key components of the home’s structure, like electrical systems. These kinds of inspections cost money and people often complain about having to pay, year after year, just to make sure everything is in top working order.

But it may be money well-spent in most cases because homeowners policies simply do not protect owners against losses that result from lack of regular maintenance or when key systems wear out due to old age.

The Final Word on Denied Claims

Even though insurance companies have lots of reasons to deny homeowners claims, homeowners who are informed can avoid the five most common methods used by carriers to deny claims. It takes a certain amount of attention and skill to keep up-to-date on the details of your home’s insurance coverage, but there’s plenty you can do to remedy the potential of a denied claim.

Here are some things everyone should do with their homeowners policies:

  • Review them regularly, preferably once per year.
  • Set perils coverage to special if it’s not already there.
  • Make sure deductibles are reasonable and based on levels that you are okay with.
  • Sit down with, or speak to, your Agent and ask if there are any ways to reduce your premium without altering the kind or amount of coverage. It’s possible that due to your age, equity, credit rating or income, you might qualify for a discount on your homeowners policy.
  • Read through the entire policy at least once while you have access to a good online insurance dictionary. This can seem boring, however, it’s time well spent. Some people actually enjoy learning the details of their homeowners policies by taking on this task.
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