Not necessarily. If your claim for damages is one that would likely result in a judgment in excess of the policy limits, but the insurance company is stubbornly offering less, it can be a good thing. A properly worded demand letter that puts the insurance company on notice that they are putting their insured at risk can actually result in a larger recovery. The insurance company has a duty to look after the interest of its insured over their own greed. The problem is that they rarely do. Fortunately, the law provides that if they are properly put on notice and they refuse to pay within the time stipulated (it must be reasonable) and if you actually get an award above the policy limits, the insured has a cause of action against the insurance company for the excess judgment. The insured then assigns the claim to the recovering party and the insurance company is on the hook. Say you were in a care wreck and it wasn't your fault. You have past medical bills of $15,000.00 and probable future medical bills of $20,000.00 and a permanent impairment at some level. Your case should be worth well in excess of $100,000.00, but the party at fault only has $25,000.00 in coverage. The adjuster claims that future medicals are speculative and you had pre-existing problems and the usual BS they use to try to convince you to take less than you deserve. This can be a good thing. If the proper letter is sent and they still don't offer the limits, all bets are off. The limits aren't capped at $25,000.00 any more. You hire a good lawyer to write the demand letter
and file suit and by the time it gets to a senior adjuster and a defense lawyer that
knows you have a good lawyer who actually tries cases and gets good verdicts you will receive an offer well in excess of the limits and more in line with what your case is really worth.