Short-Settlement in Insurance Claims: Know Your Rights and How to Fight Back

Introduction: “Why Did I Get Less Than I Claimed?”

Imagine this: You undergo a surgery costing ₹5 Lakhs. You have a policy worth ₹10 Lakhs. You file the claim, confident that you are fully covered. But when the message pops up on your phone, the insurer has only approved ₹3.5 Lakhs.

This is called Short-Settlement (or partial settlement). Unlike a full rejection, the insurer admits they owe you money—just not as much as you spent. It is a subtle way for companies to save money, often citing obscure clauses like “Reasonable and Customary Charges” or “Proportionate Deduction.”

While digital platforms have made filing claims easier, they haven’t stopped insurers from applying unfair deductions. Here is how to identify if you have been short-changed and how to recover the balance.

Common Scenarios Leading to Short-Settlement

1. The “Room Rent” Trap (Sub-Limits)

The most common reason for a slashed claim in health insurance is the Room Rent Capping clause. If your policy has a room rent limit of ₹5,000 per day, but you stay in a room costing ₹8,000, the insurer won’t just deduct the difference in rent. They will apply “Proportionate Deduction” to the entire bill (doctor fees, nursing, surgery charges).

• The Result: A small upgrade in room luxury can lead to a massive short-settlement.

2. Depreciation and “Wear & Tear”

In motor and property insurance, depreciation is the silent killer of claim value. Insurers apply standard depreciation rates to parts (like plastic or rubber) based on the vehicle’s age.

• In Health Insurance: This appears as “Non-Medical Expenses” or “Consumables” (gloves, masks, syringes). Unless you have a specific add-on cover, these legitimate hospital expenses are often deducted from the final payout.

3. Arbitrary Surveyor Assessments

For car accidents or property damage, the insurer appoints a Surveyor. While they are supposed to be neutral, their assessments can sometimes be conservative. They might classify a damaged part as “repairable” when it actually needs “replacement,” significantly lowering the approved amount.

Your Legal Rights: What IRDAI Says

The IRDAI (Insurance Regulatory and Development Authority of India) is clear: insurers cannot deduct money arbitrarily.

• Transparency: The insurer must provide a “Settlement Letter” or detailed breakdown explaining exactly why a specific amount was deducted (e.g., “Deduction under Clause 4.2”).
• Fairness: Deductions based on vague terms like “unnecessary treatment” can be challenged if your treating doctor certifies the procedure was vital.

How to Identify and Fight Short-Settlement

Step 1: Decode the Settlement Letter

Don’t just look at the final amount. Request the detailed claim computation sheet. Compare every deduction against your policy document. If they deducted ₹20,000 for “Investigation Charges,” check if your policy actually excludes that.

Step 2: Raise a Grievance

If the math doesn’t add up, you must file a formal complaint with the insurance company’s Grievance Redressal Officer (GRO). Use digital support tools to upload your evidence (doctor’s justification or garage estimates) and demand a review.

Step 3: The Insurance Ombudsman

If the company refuses to pay the balance within 30 days, you can approach the Insurance Ombudsman. This is a free, quasi-judicial body set up by the government to resolve disputes between policyholders and insurers.

Conclusion: Don’t Leave Money on the Table

Short-settlement is often accepted by policyholders because they are relieved to get something rather than nothing. Insurers count on this fatigue. But remember: your policy is a legal contract. If you paid the premium for full coverage, you deserve the full settlement.

Reviewing medical codes, calculating proportionate deductions, and arguing with surveyors can be overwhelming for a layman. This is where you need an expert in your corner.

If your claim has been short-settled, contact The Insurance Bar immediately.

At The Insurance Bar, we don’t just look at rejections; we audit partial payments. Our experts analyze the insurer’s math, identify unfair deductions, and fight to recover the balance amount you are rightfully owed. Don’t let technical jargon cost you lakhs—let us decode the policy and fight for your full claim.