Denial of benefits: Overview, definition, and example
What is denial of benefits?
Denial of benefits occurs when an employer, insurer, or government agency refuses to provide certain benefits that an individual is entitled to receive. These benefits can include health insurance, disability coverage, severance pay, retirement benefits, or workers' compensation. A denial can happen for various reasons, such as incomplete paperwork, ineligibility, or disputes over coverage.
For example, an employee who applies for disability benefits after a workplace injury may receive a denial letter stating that their claim does not meet the eligibility requirements.
Why is denial of benefits important?
Understanding the denial of benefits is important because it affects financial security and legal rights. Employees and beneficiaries need to know why benefits are denied and how to appeal the decision if they believe it was unfair.
For businesses, having clear benefit policies and properly handling claims can prevent legal disputes and ensure compliance with labor laws. Employers who wrongfully deny benefits may face lawsuits, penalties, or reputational damage.
Understanding denial of benefits through an example
A full-time employee is laid off and applies for severance pay, but their employer denies the request, stating that the company’s policy only provides severance for employees with over five years of service. The employee, who has only worked for four years, is not eligible under the company’s rules.
In another example, a worker files for health insurance coverage for a medical procedure, but their claim is denied because the procedure is not covered under their plan. The worker can appeal the denial and provide additional documentation to support their claim.
An example of a denial of benefits clause
Here’s how a denial of benefits clause might appear in a contract or policy:
“The Employer reserves the right to deny any claims for benefits that do not meet the eligibility requirements outlined in the Company’s policies or applicable law. Employees have the right to appeal any denial in accordance with the Company’s dispute resolution procedures.”
Conclusion
Denial of benefits can significantly impact employees who rely on health insurance, severance, or retirement plans. Understanding the reasons for denial and the steps to appeal can help individuals protect their rights.
For businesses, clearly defining benefit eligibility and maintaining fair policies can prevent disputes and legal risks. A well-structured benefits policy ensures transparency and compliance while promoting employee trust.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.