What Is an Insurance Underpayment?

Juliet D'cruz

Updated on:


Remember when that insurance agent nagged you to purchase a policy with their firm? Do you recall how the agent promised to come through for you whenever you needed them?

All the convincing made you take a cover; you’ve been paying your premiums ever since without defaulting.

Problems begin when you decide to file claims from the company. Your insurance firm has developed convenient amnesia; they don’t seem to recall assuring you they’ll pay up in full when need be. This is a classical insurance underpayment issue that’s affecting many people.

Yet, only a tiny proportion of the masses are aware of what an underpayment is. Don’t worry if you are among them. Read on to find out more about insurance underpayment.

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The Definition of Insurance Underpayment

Let’s assume you receive employment remuneration at the end of each month. You have a contract that stipulates the amount you are entitled to from your employer. In this case, you receive your payment at a lower value than what’s in the contract.

That’s a good example of an underpayment in everyday scenarios. The concept of insurance underpayment is similar to the example. Your insurance pays part of the claim that you are entitled to as per the terms of your policy.

Insurance companies engage in this practice to maximize their profits. These firms know that their clients will make a fuss if they fail to settle a claim entirely. So, they opt for underpaying the claims since there’s little awareness of this practice among the clients.

An insurance company commits a legal offense if they purposefully underpay. Your only option is to seek legal redress by getting an underpaid claims lawyer to represent you.

Reasons for Insurance Underpayments

It’s true that insurance companies often knowingly underpay the claims. But sometimes, the underpayment occurs because of other reasons.


The adjuster has the responsibility of determining the extent of damage you’ve incurred. It’s from the assessment that the adjuster will derive the claim amount. Sometimes the adjuster makes errors during the evaluation, which lowers the claims due to you.

Misinterpretation of the Contract

The terms of the contract are integral to the claims process. You need to familiarize yourself with the damages that the contract covers. You’ll also need to know the claims payable for each damage in advance.

How you interpret the terms might be different from what the insurance intended to mean. This can be a source of underpayment. If disputes arise from the interpretation, a lawyer is your best solution to understand the terms better.

Billing Errors

Billing errors are common for health insurance underpayments. The underpayment results from errors in paperwork that you present for claims. The underpayment may also arise from the insurance company suspecting you’ve inflated the bills to get more in claims.

Complacency of Policy Holders

The worst mistake you could make is to accept the first offer from an insurance firm as the final claim. Insurance companies exist to make a profit for their shareholders like other businesses. Your claim represents an expense in their operation that they’ll try to minimize.

So, these firms will offer low amounts initially in the hopes that you accept them. People are afraid to ask for more from these companies even though they know they deserve more. Most people settle for less because they erroneously think following up is a lengthy and complex process.

What to Do If You Suspect Foul Play

It’s easy to tell if an insurance company is undercutting you. Just compare the amount in premiums you’ve paid for your policy with the firm’s amount to you as claims. If the claim amount is substantially lower then, the insurance firm might be ripping you off.

But don’t jump to a conclusion yet. These are the steps you should take:

Review Your Contract Agreement With the Firm

A thorough review of the contract will give you an idea of the maximum coverage amounts you are entitled to. Take extra caution before signing agreements with insurance firms.

Some use these contracts to entrap you. These firms insert unfavorable clauses then use agents to sign up without giving you enough time to understand the terms.

Inquire About the Calculation of the Claim

It’s crucial to find out the procedure that the insurance firm used to arrive at your claim. This puts you in a position to ascertain if the process is per the contractual terms.

It also gives you clarity about the interpretation of the contractual terms by your insurance provider. Sometimes, the underpayment results from differences in understanding of contractual terms.

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Get a Private Claims Adjuster

The first two steps are verification processes. However, they aren’t a guarantee that you are getting your fair share of the claim. You need an expert opinion to be sure.

A private claims adjuster will inspect the extent of damage and review the policy report. The adjuster will provide a reasonably accurate settlement amount that you should get from these activities. In essence, the private adjuster will help you know the insurance company’s actual liability.

Hire a Lawyer to Represent You

Insurance companies won’t adjust the claims simply because you’ve been able to uncover their trick. These firms will, in most cases, stick to the claim amount they’ve offered you. You have to push them a little further for them to revise the claim.

Working with an underpaid claims lawyer is your best shot at being successful in this quest. The lawyer will assist in calculating the penalty for underpayment. The lawyer will then compel the insurance firm to compensate you through a litigation process.

Never Settle for Less

Don’t be a victim of insurance underpayment because of ignorance or fear. Insurance companies rely on these traits to underpay your claims while they reap big from your premiums. Your first line of defense is to arm yourself with knowledge about underpayment.

But know that insurance companies won’t go down without a fight too. So, it’s better to work with an expert for better results in seeking fair compensation. Browse through for more educational articles.