Check the Fine Print: Situations That Could Invalidate Your Insurance Coverage

Even I was frightened when I started writing this blog. Wondering, “Will that claim be covered?” is one of the worst parts of an insurance agent’s job. Sometimes the dreaded claims adjuster informs the insured (and the agent) that a claim is not covered because the coverage has been invalidated in some way. That’s when the broker’s job gets tough.

You should always check the fine print of your insurance policy to make sure you’re not doing something that could invalidate your insurance coverage. Here are some situations to look out for:

Nonpayment of Premium

The easiest and most common way to invalidate your insurance coverage is by not paying your premium on time.

We had a client who didn’t pay his homeowner’s insurance premium for two years. Unfortunately, his home was damaged in a fire, and when he tried to file a claim, the policy didn’t pay. This client then tried to fight with us, claiming it was our fault he didn’t pay his premium on time.

Your insurance agent will probably send you a bill and maybe a reminder when it’s time for you to renew your policy, but it’s your responsibility to make sure the bills get paid. Don’t let payment due dates slip by and find yourself responsible for large late fees or, like our client, without coverage.

Put a reminder on your calendar for all bill due dates and policy renewal dates. You may be able to set up automatic withdrawal payments for your insurance policies. Making sure your premiums get paid on time will help you avoid late-payment fees and ensure your insurance coverage stays valid.

Material Misrepresentation

With life insurance, health insurance, disability insurance, and long-term health care insurance policies, you may come across a contestability provision. The contestability provision allows the carrier to investigate to determine if there was any misrepresentation at the time of your insurance application.

On life insurance and disability insurance applications, you have to answer questions about your health. Then you sign an authorization form that is essentially an oath saying you answered the questions accurately, to the best of your knowledge. The answers you provide influence the insurance company’s decision to accept or reject your coverage.

Some people with health concerns might be tempted to twist the truth in order to keep the premium down or guarantee coverage. This happens frequently with smokers. The premium for a smoker could potentially be double that of a nonsmoker. Wanting to pay less, a smoker might claim to be a nonsmoker. If the insurance company finds out that you are a smoker—or if you lied about something else on your application—that’s a quick way to lose your coverage.

Additional Insured

This kind of invalidation usually happens with business policies. Sometimes contract obligations require an insured business to add a client as an additional insured. This most frequently occurs when a business hires subcontractors. The insurance company may require the insured business to add clients as additional insured to protect against any injury during the course of services rendered. If our client doesn’t notify us of additional insured parties, or the agent doesn’t notify the carrier, a claim could potentially be denied.
Change of Use

We had a client who moved out of state and didn’t tell us her house was vacant. While our client was out of state, a pipe burst in her vacant home, flooding the basement.

Since the house was insured as an owner-occupied single-family dwelling, and not a vacant home, the carrier was suspicious and did an extensive investigation. Different coverage is provided for owner-occupied homes and vacant homes, and the carrier was leaning toward denying the claim. In the end, the client ended up dropping the claim.

As a homeowner or property owner, you have an obligation to maintain your property to prevent and mitigate damage. If you have a vacant home or an investment property, the insurance is available, but it will be more expensive because you are not present 100 percent of the time to provide care, custody, and control of the property.

As with most issues of insurance coverage, the best way to avoid these mistakes and other ways of invalidating your insurance coverage is to be honest with your insurance agent about your situation and the type of coverage you need.

Linda Rey is a licensed insurance agent at Rey Insurance with a broad spectrum of expertise in life, accident, health, property and casualty insurance as well as retirement planning and college funding strategies.

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