Which of the following is a common reason for claim denial?

A common reason for claim denial is lack of insurable interest. This concept is fundamental to insurance as it ensures that the policyholder has a legitimate interest in the subject of the insurance. Insurable interest requires that the policyholder would suffer a financial loss if the insured event occurs. Without this relationship, insurers have a valid reason to deny a claim, as it raises concerns about potential moral hazards or fraud, where individuals might have an incentive to cause a loss.

In contrast, while underinsurance can affect the payout amount, it does not inherently provide a reason for outright denial of a claim; it merely reduces the compensation to the extent of coverage. Improper filing relates to procedural aspects of submitting claims, which can lead to denial, but this is often recoverable with proper resubmission. Excessive claims may also raise flags for insurers and result in scrutiny but do not typically lead to instantaneous claim denials in the absence of insurable interest. Thus, the presence of insurable interest is a crucial criterion that directly influences a claim's eligibility for consideration.