Post Claim Underwriting Can Leave You Without Insurance

by Hoyt G. Tessener

Post claim underwriting is something you hope to never hear. Underwriting is the insurance company’s process of determining the likelihood of making a claim. The insurance company uses the underwriting process to presumably set its premiums. In other words, the underwriting process is the insurance company’s attempt to assess your risk. The insurance company determines your risk and sets its premiums to insure a profit.

Post claim underwriting involves underwriting after a claim is made. Instead of going through the time and expense of assessing your risk at the time a policy is purchased, in post claim underwriting, the insurance company waits until after you make a claim to determine your risk. For example, suppose you complete a health insurance application and indicate that you had never previously suffered any chest pains. Two years later, you have a heart attack and must have open-heart surgery. After the surgery you are faced with hundreds of thousands of dollars of medical bills. The insurance company then documents post claim underwriting and determines that five years before the application you had mentioned to your family doctor that you had shortness of breath. The insurance company then denies your claim and rescinds your policy. The insurance company returns your premiums but states that you were not properly insured.

Of course, right at the time you are fighting for your life and facing astronomical medical bills, you learn that you no longer have insurance. The tremendous benefit to post claim underwriting allows insurance companies to avoid the expense of proper underwriting at the time the policy is completed and allows it to cancel any policy upon which it has to pay a claim. The insurance company seeks to avoid the very risk it insures.

Post claim underwriting typically happens in life insurance and disability policies. It can also arise in health insurance policies. It is very important that you are careful in completing your application. In some instances, the insurance agent, who purportedly works for you, is actually an agent for the company. The agent may complete the application policy in a way that allows the policy to be written. The agent has an incentive that the policy be written so that the agent gets the commission. Whenever you are filling out a policy either audiotape the conversation with the agent, or at least make sure someone else is with you.