Insurance Claim Underpaid: What to Do When They Pay Less Than You're Owed

Insurance Claim Underpaid: Your Rights When the Payout Is Too Low

Receiving a partial insurance payment can be just as frustrating as a full denial — and it's often harder to spot because you did receive something. But accepting less than you're entitled to is a choice, not an obligation. Insurance companies underpay claims routinely, and many of these underpayments are successfully challenged.

This guide covers property insurance underpayments, health insurance benefit shortfalls, and life or income protection underpayments — and gives you specific strategies to recover the full amount owed.

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How Underpayment Happens: The Most Common Causes

Property Insurance Underpayment

Actual Cash Value vs. Replacement Cost: If your policy pays "replacement cost value" (RCV), you should receive the full cost of replacing damaged property at current prices. If the insurer pays "actual cash value" (ACV) — which deducts depreciation — check whether your policy actually allows this. Many policies written as RCV are incorrectly settled at ACV.

Depreciation disputes: Even when ACV applies, the insurer's depreciation calculation is often aggressive. A roof that has 10 years of useful life remaining should not be depreciated as if it has less.

Underestimated repair costs: Insurers sometimes accept contractor estimates that are too low. Independent contractor estimates often reveal a significant gap — particularly where the insurer uses a proprietary estimating software (like Xactimate) at low price points.

Undervalued contents: When personal property is lost or damaged, insurers sometimes apply excessive depreciation or undervalue items. If your items were in good condition, their value should reflect that.

Scope of damage missed: Adjusters sometimes miss damage — either because the inspection was quick, the damage was in a hard-to-access area, or it manifested after the initial inspection.

Health Insurance Underpayment

In-network rate misapplied: You received care from an in-network provider but were billed at out-of-network rates due to a coding or credentialing issue.

Incorrect benefit applied: The insurer applied a lower benefit tier than your plan entitles you to.

Wrong copay or deductible calculation: The insurer incorrectly calculated what you owe versus what they owe.

Coordination of benefits errors: When you have multiple insurance plans, the calculation of which plan is primary and what the secondary plan should cover is often handled incorrectly.

Surprise billing: You were billed for amounts beyond what the insurer paid to an in-network provider — potentially in violation of the No Surprises Act (USA) or equivalent regulations in your country.

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Step 1: Request a Full Explanation of the Payment

Before disputing anything, understand exactly how the payment was calculated. Request in writing:

• A complete Explanation of Benefits (EOB) or settlement breakdown
• The specific policy clauses used to calculate the payment
• Any depreciation schedules applied (for property claims)
• The adjuster's scope of loss report (for property claims)
• The specific billing codes used and payment rates applied (for health claims)

This gives you the foundation for your dispute. You cannot challenge what you don't understand.

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Step 2: Review Your Policy's Exact Payment Terms

Read the relevant policy clauses carefully:

• Replacement cost or actual cash value? If the policy says replacement cost, the insurer must pay what it costs to replace the item today — not what it was worth when it was purchased or what they estimate it will depreciate to.
• Coverage limits and sublimits: Are there per-item or per-category limits that cap the payment? Some items (jewelry, electronics, artwork) have sublimits that are separate from the overall coverage limit.
• Coinsurance clauses (property insurance): If you were underinsured relative to the property's value, a coinsurance clause may reduce your payment proportionately. Understand whether this applies and whether the calculation is correct.
• Deductible application: Confirm the deductible was correctly applied — including whether a separate, higher deductible applies (e.g., hurricane or earthquake deductibles in some US states).

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Step 3: Commission an Independent Assessment

The most powerful tool in an underpayment dispute is an independent expert who provides a higher valuation.

For property claims:

• Hire an independent licensed contractor to estimate the full repair or replacement cost
• Commission an independent property appraiser
• The gap between your insurer's settlement and the independent estimate is your dispute amount

For health insurance:

• Request itemized bills from your provider and compare them to what the insurer paid
• Verify that the correct billing codes were submitted and paid
• If coordination of benefits is an issue, contact the second insurer with a calculation breakdown

For life and income protection claims:

• Review the benefit calculation formula in your policy document
• If a partial disability benefit applies, verify that the income loss is correctly calculated

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Step 4: Use the "Proof of Loss" and "Reservation of Rights" Tactics

In property insurance underpayment disputes, two important concepts apply:

Supplemental Proof of Loss: In most jurisdictions, you can submit a supplemental proof of loss document at any time during the claim period (sometimes up to one year after the loss) that revises the claimed amount upward based on new evidence or revised estimates. This formally puts the higher number on the table and requires the insurer to respond.

Challenging Reservation of Rights Letters: If your insurer issued a payment under a "reservation of rights" (meaning they're not conceding full coverage), the underpayment may represent an interim payment rather than a final settlement. Review any reservation of rights correspondence carefully before signing any release.

Do NOT sign a "full and final settlement" release if you believe you are owed more. Signing such a document typically waives your right to dispute the payment.

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Step 5: File a Formal Dispute

Submit a formal written dispute to the insurer's complaints department, including:

• The policy provisions that entitle you to a higher payment
• Your independent contractor estimate or appraisal
• The specific calculation you believe should apply
• A request for the difference between what was paid and what you are claiming

Under most insurance regulations, insurers must respond to formal disputes within defined timeframes and must either pay the additional amount or provide a written explanation with specific policy grounds for their calculation.

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Step 6: Use the Appraisal Clause (Property Claims)

Many property insurance policies contain an appraisal clause — a contractual mechanism for resolving payment disputes without litigation. It works as follows:

1. You demand appraisal in writing
2. Both you and the insurer appoint an independent appraiser
3. The two appraisers attempt to agree on the loss amount
4. If they can't agree, they appoint a neutral umpire whose decision is binding

The appraisal process is often faster and cheaper than litigation, and it bypasses the insurer's internal claims department entirely. Check your policy for the appraisal clause — it's usually in the "conditions" section.

Important: The appraisal clause typically only covers disputes about the amount of loss, not coverage disputes (which require litigation or regulatory complaint). Make sure you're disputing amount, not coverage.

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Step 7: Escalate to Your Insurance Regulator

If the insurer refuses to pay the correct amount or ignores your dispute:

• USA: File a complaint with your State Department of Insurance. Most states have regulations requiring insurers to pay the correct amount promptly and to handle claims in good faith.
• UK: Escalate to the Financial Ombudsman Service (FOS) within 6 months of the insurer's final response
• Australia: File with AFCA within 2 years
• Canada: Contact your provincial insurance regulator or the General Insurance OmbudService
• India: File with IRDAI or the Insurance Ombudsman (Bima Lokpal)

Underpayment is typically treated as seriously as outright denial by regulatory bodies.

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Common Mistakes in Underpayment Disputes

1. Cashing the check as final payment. In many jurisdictions, endorsing and cashing a check marked "full and final settlement" constitutes acceptance of that amount. Before cashing any partial payment, confirm whether it's marked as final settlement.

2. Not reading the EOB or settlement breakdown carefully. The error is often in the details — a wrong billing code, a depreciation calculation error, or an incorrect deductible. You can't challenge an error you haven't identified.

3. Waiting too long. Insurance dispute deadlines apply to underpayment disputes too. Most policies require disputes to be raised within one year of the loss.

4. Not getting an independent estimate before disputing. Going to the insurer and saying "I think you paid too little" without an independent valuation to support your position is unlikely to succeed. You need numbers.

5. Confusing coverage disputes with amount disputes. If the insurer disputes whether something is covered at all, that's a different battle than disputing the amount paid for something they've already agreed is covered. The strategies differ.

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Getting Help With Your Underpayment Dispute

An underpayment dispute requires a clear, evidence-based formal complaint that presents your calculation, references the relevant policy provisions, and demands the specific amount you're owed. ClaimBack can help you draft a structured dispute letter for insurance underpayment cases, using language that is taken seriously by claims departments and regulators. Visit claimback.app to get started.

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Summary: Underpayment Dispute The Full Fight

1. Request the full payment breakdown — EOB, settlement sheet, depreciation schedule
2. Review your policy carefully — confirm replacement cost vs. ACV, coinsurance, sublimits
3. Commission an independent estimate — from a contractor, appraiser, or specialist
4. File a formal written dispute with your independent valuation attached
5. Invoke the appraisal clause (for property claims) if available in your policy
6. Do not sign any full and final settlement release until you are satisfied with the amount
7. Escalate to your regulator if the insurer refuses to engage with your dispute