What Is an Underpaid Claim?

When you file an insurance claim, you expect your insurer to cover the losses fairly and according to the terms of your policy. However, sometimes insurance companies do not pay the full amount you are entitled to. This situation is known as an underpaid claim. Unlike a denied claim, where no payment is made, an underpaid claim occurs when the insurance company offers less than what is needed to properly cover the damages or losses.

Why Do Underpaid Claims Happen?

Underpaid claims can occur for a variety of reasons. Sometimes, the insurer undervalues the cost of repairs or replacements. For example, if your home is damaged by a storm, the insurance company may approve the claim but offer a payment that does not fully cover labor, materials, or updated building codes. In other cases, policy language may be interpreted narrowly, reducing coverage. Additionally, insurers may apply depreciation or exclusions in a way that benefits them but disadvantages the policyholder.

Common Examples of Underpaid Claims

Underpaid claims are most common in areas like property, health, and auto insurance. For property insurance, homeowners may receive less than the actual cost of fixing roof, water, or fire damage. In health insurance, underpayment can happen when the insurer covers only part of a medical bill, leaving the policyholder with unexpected costs. With auto insurance, an underpaid claim may involve receiving a settlement that is less than the market value of a car after an accident.

Impact on Policyholders

The financial burden of an underpaid claim can be significant. If the insurance company doesn't provide enough money, policyholders may be forced to cover the remaining costs out of pocket. This can delay necessary repairs, create debt, or limit access to healthcare or other essential services. Over time, underpaid claims can erode trust between consumers and insurers.

What to Do If You Suspect an Underpaid Claim

If you believe your claim has been underpaid, the first step is to carefully review your policy and the insurer’s explanation of payment. Gathering receipts, repair estimates, and independent appraisals can help strengthen your case. Policyholders also have the right to appeal or dispute the insurer’s decision. In more complex situations, hiring a public adjuster or seeking legal assistance may be necessary to ensure fair compensation.