Car Insurance Loopholes: What You Need to Know

All auto insurance companies have written specific terms into the policy documentation that states why claims will be denied, which are called loopholes. Claims will be denied when the policyholder takes certain actions that void the coverage on the policy. Find the best company for your needs with our FREE ZIP code search!

While these may be considered loopholes to the insurer’s advantage, a driver that increases the risk of collision or injury is more likely to file claims. Every insurance company is diligent in lowering its claim costs to protect the other policyholders in each coverage pool.

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Policy-related Issues

Life events can change the need for car insurance coverage. When needs change, the policyholder must notify the insurance company so that types of auto insurance coverage can be updated. Misaligned coverage is the most common cause for claims that are denied. Most issues with coverage are discovered when an incident occurs. Annual auto insurance reviews can prevent this occurrence because every aspect of the auto insurance policy is reviewed.

There are some valid reasons that insurance companies will deny payment of a claim, including:

• Insufficient coverage
• Uninsured driver
• Driver not on policy

Claims are paid up to the dollar limits on the policy. Any cost over the stated coverage limits will not be paid. If a policy has a liability component but does not have collision or comprehensive components, a claim for repairs to the policyholder’s car will be denied.

If the accident involves another car, the insurance company might discover that the other driver was insured at the time of the accident, but has since dropped coverage. The two insurance companies will work together to determine which one will pay the claims.

Auto insurance policies must include the drivers in the household. Denial of claims is most common when parents forget to add teen drivers to the car insurance policy. Under business auto insurance policies, the list of valid drivers must be updated for certain “symbols” of coverage.

Automobile not added to policy: Private insurance policies must list the automobiles that are insured, including the VIN for each vehicle. Every new car purchase must be conveyed to the insurance company to keep the policy up to day.

Most insurance companies will provide 72 hours of coverage after the new car purchase.

Omissions by Policyholder

Diligence is required to sustain coverage for every automobile owned by the policyholder. Some drivers fail to review the policy documents that state the requirements on each driver to prevent denial of claims.

Auto insurance policyholders can cause a lapse in their auto insurance coverage if either of the following occurs:

• Failure to pay premium
•  Driving illegally

Annual policy premiums can be paid monthly, quarterly or semi-annually. Omitting payment prior to the due date can cause the policy to lapse. If an accident happens before the coverage is restored, the insurance company can refuse to pay the claim. Some insurers have grace periods, but that period is usually one to three days. Disputing a claim that occurred when the policy was not in force is almost impossible.

A valid driver’s license that is in good standing with the issuing state is required for all drivers. When a claim is made and the driver was not allowed to drive, the insurance company will deny the claim. Responsible drivers will notify the insurance company if a DUI occurs. Insurance companies can drop the driver that drives illegally.

Fraudulent Claims

Insurance fraud is prevalent and raises auto insurance costs for everyone in the insurance pool. Insurance adjusters are adept at identifying attempts to defraud the insurance company for financial gain. There are two definitions of fraud that carry various legal consequences:

• Soft insurance fraud
• Hard insurance fraud

When a legitimate collision occurs and the driver who fakes the severity of the injury to make a larger claim, this is called fraud. If the insurance company can determine that the driver is not severely injured, legal charges of fraud can be filed. Other types of soft fraud include falsifying application information, lying about driving convictions or using another person’s name to purchase insurance.

The dollar amount of the fraud will determine whether the case is tried as a misdemeanor or a felony. Most soft fraud cases are misdemeanors.

Creating a situation that will cause loss is the definition of hard insurance fraud. Staging a vehicle theft or intentionally causing an accident with the intent of financial gain is considered fraud. The intent behind this type of claim will result in felony fraud charges.

Insurance companies take this type of fraud very seriously and will pursue every legal action to recover any monies that were paid to the party behind the incident.

Insurers will hold the driver accountable for any fraudulent claim that is discovered. The penalty for violating auto insurance laws can result in fines and jail sentences for those who falsify claims. Once the legal penalties have been repaid, the insurance industry will refuse to insure the driver.

The consequences are not worth the attempt to gain from fraudulent insurance claims.

Insurance companies are heavily regulated by the insurance commissions of the states where they conduct business. Their role in business and commerce cannot be overstated because of their ability to shape behavior that makes the roads safer for all drivers.

While there are issues with claims that might have been denied unfairly, the majority of insurance companies strive to pay legitimate claims. You can find FREE auto insurance quotes customized for your needs with our quote comparison tool!

Most of drivers follow safe driving practices and sustain their insurance coverage. For those who attempt to play a game for personal gain, the insurance adjusters and claims personnel work diligently to reduce costs in an effort restrain annual premiums for everyone. Find out if you can find cheap auto insurance coverage in your area today with our FREE ZIP code search!