Insurance own-goals: Mistakes that lead to declined claims
We love to hate insurance companies. But they do pay most claims. The trouble is that a lot of us don’t understand the basic concepts of how insurance works and we get caught by some mighty expensive fishhooks.
Imagine this scenario. You borrow mum’s car, but crash it while dropping a mate home. “No worries”, you say, “mum’s insurance will pay the claim”. The claim is declined because you breached your restricted licence by carrying a passenger. What are you going to say to mum about your little mistake, her written off car and the $10,000 damage you did to someone’s fancy fence? You’re probably facing bankruptcy in the eye.
That’s nowhere near all. There are many more insurance gotchas to beware of:
White lies
Your handbag is stolen. It’s expensive to replace the contents and you have a $200 excess. So you add a few extra things into the claim to cover it. The insurance company’s assessor or investigator spots something suspicious about your claim, because most of us are bad liars, and the company cancels the policy instead of paying out. If that’s not bad enough your name is added to the Insurance Claims Register as someone who has attempted fraud in the past, and you can never get insurance again even when you want to buy a house.
Criminal pasts
You, your son/daughter who live with you, partner or flatmate has a criminal past and it doesn’t occur to you to tell the insurance company. You may not even know about the convictions. None-the-less you’re not covered by your house contents insurance (or building cover if that conviction was for arson) unless you divulge this information. The insurance company’s argument is that it wouldn’t have offered you insurance at all or the rate it gave you if it had known that someone with said convictions was living with you.
Drink driving and other road misdemeanours
If you don’t update your motor insurance company on policy renewal date that you’ve been convicted of drink driving or other serious offences you won’t be covered for that Ferrari you just hit. It happens. Make sure you also tell your insurance company about lesser offences such as using a mobile phone whilst driving or speeding fines. Better safe than sorry.
Pre-existing conditions
“Help, my husband has had a heart attack. We need insurance fast.” I saw this posting on the Trade Me community forums. Insurance covers you for the unexpected, not what you already have when you take the policy out. Buy before you die, as some people say. This catches too many Kiwis out each year with income or mortgage protection policies, life, critical illness/trauma insurance and perhaps the most surprising, travel insurance. A travel policy doesn’t cover you for illnesses related to conditions you’ve had in the past unless you declare it and pay an extra premium. That includes precursors to illnesses. Even worse, if you want to cancel your holiday or fly back early because granny just died, you won’t be covered if she died of a pre-existing condition prior to you booking. This one really does surprise people.
Gradual damage
The floor collapses under your shower. “No worries, I’ll make an insurance claim”. The trouble here is that insurance covers you for sudden events, not a slow leak causing a rotten floor. Landlords often get caught out with gradual damage claims because their tenants fail to tell them about the dripping tap. Some insurance policies have limited “gradual damage” cover, but make sure you’ve got it and you understand the cover.
Other fish-hooks on the insurance long line to watch out for include, goods in storage, belongings in transit, unattended baggage, electrical breakdown or failure, jewellery or valuables not ‘carried on your person’, invited guests or tradespeople thieving, lying about who is the main driver, failing to tell the insurer that the house is let or has Airbnb or other guests, not declaring modifications to a vehicle even including flash paint jobs or mag wheels, and withholding information that previous claims have been declined or cover refused.
Finally, read your policy, read your policy, read your policy. And if you think you have been treated unfairly then complain to the Insurance & Financial Services Ombudsman or other complaints resolution service.
