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Why Do Insurance Companies Deny Coverage?

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Joel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Insurance Q&A: “Why do insurance companies deny coverage?”

First, let’s make sure we are addressing the correct question here, as many people use the terms “claim” and “coverage” interchangeably.

Coverage can be denied prior to a policy being issued; meaning the insurer refuses to accept your application and issue a policy for you.

This post is for you if you’re curious why you were denied an insurance policy in the first place. You will want to follow this link if you are asking why insurance companies deny claims after your policy has been issued.

Did You Apply to the Right Type of Insurer?

Insurance coverage is most often denied when you attempt to purchase a policy from an insurance company that doesn’t have an appetite for your particular risk profile.

It’s important to recognize that there are different types of auto insurance companies. Not all insurers want to insure every type of “risk.”

For the most part, each insurer has what is referred to as an appetite…and they stick with it. If you don’t fit the appetite, they will deny coverage.

Without going into too much detail, we all fit in one a few different categories: Preferred, standard or non-standard.

There are many more “sub-categories,” but those three pretty much cover the basics.

People who fit the non-standard risk profile will likely be denied coverage from an insurer who specializes in insuring those of us in the preferred risk profile.

In other words, if you’ve got lots of speeding tickets, insurance claims, or perhaps a DUI on your driving record, a preferred auto insurance company will probably deny you coverage.

So you’ll have to shop your rate with some non-standard companies that specialize in insuring higher-risk drivers. This is similar to how credit card issuers have cards for those with good credit, and cards reserved for those with poor credit.

How to Get Approved the First Time

Compare insurance quotes online and/or visit an independent insurance agent to shop your rate with several insurers well suited to your unique driving profile.

Matching your risk profile with the correct company will almost always result in the best deal on your insurance.

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