Which Types of Insurance Policies Are Affected by Denial or Underpayment of a Claim?
Bad faith insurance practices, including unfair denials or underpayment of claims, are not limited to any one type of insurance policy. The types of policies most often affected by unreasonable claim denials or underpayment are health insurance, life insurance, disability insurance (including both long-term disability and short-term disability), long-term care insurance, property insurance, and annuities.
Health Insurance Denials
A health insurance denial often comes when a policyholder seeks approval for a drug, treatment or surgical procedure, and the insurance company responds that the proposed treatment is not medically necessary. For instance, they’ll deny a reconstruction surgery as cosmetic, even though it would improve function or normal appearance, reasons which are authorized for coverage under California law. Alternatively, they’ll refuse a request on the ground that the treatment is experimental and investigational. More often than not, the requested procedure or medical device labeled “experimental” or “investigational” has been approved by the FDA for years, regularly approved by other insurers, routinely performed around the country, and has successfully passed the rigor of peer-reviewed studies and controlled clinical trials. Insurers sometimes take blanket approaches in their denials, preferring traditional, invasive surgery over alternative devices or therapies without conducting an individualized assessment of the patient’s needs.
Life Insurance Denials
Delay or denial of life insurance benefits can keep a family from giving their loved one a proper funeral and can cause them to go into default on their home mortgage. Insurers avoid claims by demanding documentation that the beneficiaries don’t have and can’t get. They might also claim the policy lapsed due to non-payment of premiums, even though the policyholder might have been told they could skip a premium payment by applying a dividend instead. Carriers might also look for any error in the application that would give them grounds to reject the claim. Insurance companies are limited by California law to a two-year contestability period; attempts to contest the application outside this period are likely illegal and evidence of bad faith insurance practices.
Disability Insurance Denials
Disability insurance includes both long-term disability and short-term disability plans. These policies are often purchased by high earners, leading to high payouts when a policyholder makes a claim. To avoid paying these high-dollar benefits, insurance carriers might allege the policyholder took too long to make a timely claim. Assuming the claim is timely, they might make interminable requests for documentation the policyholder doesn’t have or that doesn’t exist, hoping to run out the clock without paying benefits, particularly on a short-term disability plan. They’ll dispute the policyholder’s claim of a disability and dispute the doctor’s opinion as well. If benefits are granted, the insurers often require documentation every month, looking to cut off benefits as soon as possible, often before the policyholder has recovered.
Long-Term Care Insurance Denials
Long-term care insurance pays for a stay in a nursing home, assisted living facility or hospice; benefits not typically covered by health insurance. Even though this care is precisely what long-term care insurance is for, insurers will scrutinize every claim and adopt a combative stance before giving in and paying these high-dollar benefits. They might dispute the fact that you need long-term care at all or allege that you don’t care at as high a level as you are seeking.
Annuities look like insurance products, but they are more accurately characterized as investment products. They are sold by life insurance companies, but instead of providing benefits to beneficiaries after the policyholder’s death, they claim to pay benefits to the policyholder during their lifetime. Annuities are sold to seniors as a way to guarantee a steady stream of income at some future date. As things go, the annuity could tie up the annuitant’s assets and keep them from accessing their hard-earned cash in the event of a medical emergency or family crisis. Some annuities place the payout date so far in the future that they outlive the annuitant or don’t pay out until long after the money is truly needed. Annuitants who withdraw funds early find themselves heavily taxed with surrender fees.
Annuitants often buy their annuities under high-pressure sales tactics, where they are not fully informed about the risk involved, or they are promised bonuses and free premium payments somewhere down the line that never materialize. Agents might engage in tactics such as twisting and churning, getting owners to sell their annuities and purchase news ones at no benefit to the policyholder. These practices often cost more to the holder of the annuity in premiums and fees while generating sales commissions for the agent.