A term insurance policy is a staple in the financial portfolio of individuals having dependents. By investing in a term insurance policy, you can provide financial security to your dearest ones in case of your sudden death. However, with such a vast array of policy providers in the insurance market narrowing down your search to a single provider is not easy.
According to financial advisors, you must assess the past record of the insurer based on its claim settlement ratio before buying a policy. In fact, it is the most objective evaluation criteria that you should consider over lowest premiums and lucrative benefits.
What is the claim settlement ratio?
Claim settlement ratio (CSR) is the number of death claims settled by an insurance company within a specific period. This metric reflects the total number of death claims that are approved by the company in the past. The ratio is computed by dividing the number of settled claims by the total number of claims made by the customers. For example, if an insurance company receives 100 claims and settles 89 out of them then the CSR of the company is 89%. Usually, a CSR ratio of 80% or more is considered to be good. This ratio functions as an objective evaluation criterion for the customers.
Claim Settlement Ratio = Total number of claims approved/total number of claims received
Importance of checking the claim settlement ratio:
According to the annual report of the insurance regulator, IRDAI, among the hoard of private life insurance companies in India, only a few have a claim settlement ratio of over 90%. This indicates that most of the insurers are not active in paying death claims to the nominees of the policyholders at the time of crisis. Since the main purpose of buying a term plan is to secure your family’s financial future, it is vital to choose a reliable and efficient company.
Helps to assess the reliability of the insurer:
The CSR of an insurer helps you to estimate the approval chances of a claim made by your nominees in your absence. Since it provides a glimpse into the past claim settlement history of the insurer you will be able to gauge the willingness of the insurer to provide insurance benefits to your beneficiaries at the time of need. You will also be able to determine how efficient and active it is in settling claims.
Indicates the efficiency of the insurer in processing claims:
If a company has a low claim pending ratio it indicates its ability to settle claims on time. Contrarily, a company with high claim pending ratio is likely to be slow in processing the claims. Thus, just by checking the figures you will be able to determine how good or bad a company is when it comes to claim settlements.
Enables to determine your family’s financial security:
Securing the financial future of your loved ones is the objective of availing a term plan. However, your job is not done with the purchase of the policy. Before making an investment, you need to ensure whether the insurer will take care of the financial needs of your dependents or not. The claim settlement ratio is a reliable criterion to assess the company’s efficiency.
Reflects the financial position of the company:
The CSR also reflects the financial position of the company. Insurance companies that have a claim settlement ratio of more than 80% to 95%, are considered to have a strong and stable financial position. Since the company is willing to pay the claim amount to many customers its finances are likely to be secure.
Indicates how supportive and caring the company is:
It also signifies how caring the company is towards its customers and their loved ones. When you decide to buy a term plan from an insurer having high claim settlement ratio you can be assured that the company will tend to your family members during trying times. A high claim settlement ratio is proof that the company handles the claims well and settle them within a short turnaround time.
Points to remember
Here are some of the vital points to keep in mind while checking the claim settlement ratio of an insurance company:
- A company that has a claim settlement ratio of more than 80% are reliable and the chances of your claims being settled are higher.
- Besides looking at the claim settlement ratio of a company, you should also check the number of claims that it received. It is also important to check its age and popularity.
- You should also consider the consistency of the claim settlement ratio of the company over the last 5 years. This will help you to know if there were any inconsistencies in claim settlement in the past.
- While checking the claims pending ratio, consider the age of the pending claims. As per the government guidelines, companies should ideally settle all the claims within 6 months of receipt of the same. If the number of claims pending for 6 months is higher the efficiency of the company needs to be considered.
Buying a term insurance policy is a serious deal. Hence, it is very important to estimate the probabilities of claim settlement in the future. Claim settlement ratio is a major assessment tool in this regard. However, you shouldn’t use this ratio as the only factor to narrow down your search to a specific company. You should also check the popularity of the company, coverage offered, premium rates, customer service, etc., before buying a term insurance plan.