Claim settlement ratio is an important metric that a term insurance policy buyer should be aware of. When you buy a term plan, you buy it with the confidence that your insurer will pay the life cover to your family if you pass away during the policy period. While selecting your insurer for buying your term plan, one of the key factors you need to check is the insurer’s claim settlement ratio (CSR), as it will give you an idea of how likely your insurer will give your family a payout when they file a claim for your term plan. Let’s explore more about this important metric.
What Do You Mean by Claim Settlement Ratio?
Claim settlement ratio is a metric that points towards the percentage of approved claims by an insurer. It is simply the number of approved claims divided by the number of claims received during a given time period.
The Insurance Regulatory Development Authority of India (IRDAI) releases the annual claim settlement ratios of different life insurance companies. It’s generally best to pick insurers who have a claim settlement ratio of 97% or above.
How to Calculate Term Insurance Claim Settlement Ratio (CSR)?
Claim settlement ratio can be calculated as the number of claims settled/approved divided by the number of claims received during a given time period by an insurer. Let’s take a small example to understand this better. Insurance company ‘A’ received 100 claims in a given year, out of which they were able to approve 97 of them. The claim settlement ratio for this company will be 97/100, which is 0.97 or simply 97%.
In the above example, you may think of why the insurance company was not able to settle the other claims. This may be because of many reasons, like non-disclosure of information by the policyholder at the time of buying the policy or fraud, etc. However, the claim settlement ratio should not be the sole criterion upon which you are deciding the insurer. You should also look at other important factors like brand, customer reviews, etc., before you take a decision.
Factors that Influence Term Insurance Claim Settlement Ratio
There are several factors that affect a company’s claim settlement ratio:
1. Non-disclosure of information by a policyholder: If a policyholder hides information about themselves from an insurer, it could lead to claim rejection. For example, if an applicant doesn’t reveal that they are a smoker and buy a policy, then later on, if they pass away due to a smoking-related cause, the insurer can reject the claim.
2. Death caused by an exclusion: If a policyholder passes away due to an event mentioned as an exclusion in the term plan, then the claim can get rejected. For example, if death by drunk driving is mentioned as an exclusion in the policy, then if the policyholder dies by that event, their nominee’s claim can get rejected. One should be aware of what their policy exclusions are.
3. Fraud: If the claim is raised with the intent of fraud, then the insurance company can reject it. For example, if someone buys a policy and fakes their death, this can lead to an investigation, upon which the claim can get rejected if they find out that the policyholder is actually alive and had faked their death.
Importance of Term Insurance Claim Settlement Ratio
The claim settlement ratio is not just an important metric for insurance companies but also for potential term insurance buyers. Here’s why it is important:
1. It indicates the likelihood of a company paying the life cover when a claim is made: You don’t want to keep the financial future of your family in the hands of a company that has a low claim settlement ratio, right? See, when a company has a low claim settlement ratio, it may mean that they generally are not able to settle claims, which may be due to a variety of reasons. It’s best to go with a company that has generally honoured 97% or more of their claims.
2. It indicates the reliability of the company: A company with a high claim settlement ratio can be thought of as one that is reliable. That means your nominee is very likely to get the claim amount. Further, not just for customers, but the claim settlement ratio is important for the insurer too! Customers are generally likely to choose companies that have a high claim settlement ratio, as they would want a reliable insurer to secure the financial future of their family.
How to Choose the Best Term Insurance Company in India?
Not just the claim settlement ratio, but one should also consider other factors when choosing an insurance company for their term plan:
1. Claim processing time: Try not to go for companies that have more than 1 day for processing claims. A delay in the claim process will mean that your life cover will be delayed in reaching your family. So, you would ideally want to go for companies that are likely to pay out the claim at the earliest to your loved ones. Receiving a claim late may cause a delay for your family to overcome financial difficulties that may arise after your demise. The earlier they get the payout, the better!
2. Customer reviews: Try to select companies that have generally positive customer reviews. You can get such reviews online or by talking to people (such as friends, family, and financial advisors). You do not want to end up with a company that doesn’t have very good customer service standards, as hassles can be created later on.
3. Brand: Select a reputable and trustworthy brand that you are comfortable with. This does not necessarily mean going with the oldest brand out there; this means going with a brand that has been known for providing very good service to its customers and is trustworthy enough to keep the financial safety of your family in their hands.
While you may also come across solvency ratio as a criterion for choosing insurance companies, you need not worry about it as it is taken care of by the IRDAI. The solvency ratio refers to the ability of the insurer to pay back their debts.
As term insurance cannot be ported (that is, transferred from one company to another), be sure that you take an informed decision when you select an insurer for your term plan.
Frequently Asked Questions
Q1. What is the claim settlement ratio in term insurance?
Claim settlement ratio is simply the number of claims accepted by the insurer divided by the number of claims received in a given time period. It is a metric that indicates what percentage of claims an insurer has cleared.
Q2. How is the claim settlement ratio calculated?
Claim settlement ratio is calculated as the number of claims accepted divided by the number of claims received by an insurer in a given time period.
Q3. Why is the claim settlement ratio important in term insurance?
Ideally, you would want to take a term plan from a company that has a good claim settlement ratio. In this way, you can have the peace of mind knowing that your claim will likely be accepted.
Q4. What affects the claim settlement ratio of term insurance companies in India?
Certain factors, like non-disclosure of information by the applicant at the time of policy application, deaths caused by events mentioned as exclusions in the policy, or fraud, can affect the claim settlement ratio of companies in India.
Q5. How can I choose the best term insurance company in India?
Try to select a company that has a claim settlement ratio of 97% or above.
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