Question

Counterparty risk in purchasing insurance Counterparty risk is the possibility of loss due to the other...

Counterparty risk in purchasing insurance

Counterparty risk is the possibility of loss due to the other party to a transaction failing to live up to its obligation. This can happen with insurance, where the carrier denies paying an insured's claim. In that case the insured ends up suffering the loss even though he/she thought a risk management tool (i.e., insurance) was in place to handle any loss that might occur.

The article found here https://www.fa-mag.com/news/insurers-resist-paying-death-benefits-6764.html Links to an external site. describes some cases in which carriers did not pay insured's claims.   After reading the article, answer either or both of the questions below.


a) What is your impression after reading this article?

b) Have you or a friend or family member ever had a claim denied by an insurance company? Why did the carrier deny the claim? Did you (or the friend or family member) feel this was a valid justification for not paying the claim?

Homework Answers

Answer #1

a) The insurers not paying up benefits has been done since ages. What is more amazing is the impunity with which they commit these frauds. Some people may sue the insurer but most of them avaoid going through lengthy court dealings and settle, sometimes for pretty less. The article has affirmed my faith in how the insurers operate without any regard for morality and even law.

b) Similar to various cases, one of our close family friends were denied similar benefits during hospitalization citing the fact that the disease was already present even after 5 years post buying insurance when the waiting period was 2 years. They fought the claim in court and luckily their attorney could get full coverage for them

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