Why It Is Important to Consider the Claim Settlement Ratio when Buying a Term Plan?

What is the claim settlement ratio?

A claim settlement ratio is a percentage of the number of claims settled by an insurance company against the number of claims received over a period of time. So, in case of the demise of the life insurance policyholder, the nominee or family member files a claim, after which the insurance company follows the claim process and approves or rejects the claim as per their terms and conditions. The higher the claim settlement ratio, the higher could be the chances of your claim approval. Whereas, a poor claim settlement ratio could mean the insurance company follows stringent criteria for claim approval.

How to calculate the claim settlement ratio?

The claim settlement ratio, also known as CSR, can be calculated by dividing the total number of claims settled by the insurance company by the total number of claims received by the insurance company.

Suppose the total number of claims received by the insurer in a year is 1,000, out of which 850 are settled. In this case, the claim settlement ratio of the company for this particular year would be:

CSR = Total number of claims settled by the insurer / Total number of claims filed by the policyholders

= 850/1000

= 85%

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Why you should consider a claim settlement ratio when buying a term plan?

The loss of the breadwinner of the family causes severe emotional and financial turmoil. However, a good term insurance plan can reduce your worries and burden. While there are so many things to consider when buying a life insurance policy, the claim settlement ratio of the insurance company should be one of the key factors amongst them.

There are multiple options to buy a term plan online at cheaper rates. However, the ultimate purpose of buying a term plan is to ensure your family's financial protection. Since it is one of the big investments in your financial plan, it is necessary to make a well-researched purchase.

A good claim settlement ratio is an indication that the insurer follows a smoother claim settlement process and will most likely settle your claim. Whereas, the insurance companies with lower claim settlement ratios might not prove to be a good decision as there are more chances of claim rejection.

How to check a claim settlement ratio?

Considering only the claim settlement ratio might not be of much help, but it would help if it is seen in context with the total amount of claims settled, total policies in force, etc.

Earlier, insurance companies did not have a format to showcase their claim settlement ratios. But the Insurance Regulatory and Development Authority of India (IRDAI) has permitted the insurance companies to advertise and display their annual figures of death claims paid ratios in a standard format. The IRDAI does not permit the insurers to publish any death claim payments apart from the number of policies. This ensures the customers can access the necessary data that can help them make an informed decision and also maintain the privacy of the customer data.

While considering a claim settlement ratio, it is crucial to check the ratios of the adequate number of years, as data of only one or two years could be manipulated. Hence, it is advisable to consider the claim settlement ratio of the last five years to clarify the successful death claims better.

Is considering only death claims enough?

The claim settlement ratios disclosed by the insurance companies are calculated for all the types of life insurance policies, such as term plans, endowment plans, and unit-linked insurance plans. Hence, when buying a term plan, you cannot check the claim settlement ratio only for term plans. Instead, it shows the ratio of all the types of insurance plans offered by the insurer.

Since the financial and medical underwriting of these plans could be different, having separate claim settlement ratios for different types of life insurance plans could help the buyers make better comparison.

While it is one of the crucial parameters to look at when buying a term plan, it should not be the only deciding factor. It is essential to consider the total amount of claims settled, total policies in force, your income, premium, required coverage, plan benefits, policy inclusions and exclusions, terms and conditions, etc.

Apart from this, it is also equally necessary to provide accurate information to the insurance company while buying a term insurance policy. You should know that hiding or misrepresenting any personal or family health details can lead to a claim rejection.

Furthermore, the life insurance policies run for a long duration, and the claim settlement ratios can change drastically over this period. Hence, providing the correct health details will ensure your claim gets settled successfully, rather than relying only on the claim settlement ratios disclosed by the life insurance companies.

To Conclude:

As discussed, a good claim settlement ratio means a higher number of death claims paid. Hence, it should be one of the key factors to consider when you buy a term plan online or offline. However, to ensure your claim gets settled successfully, you should look at other parameters as well and then make an informed decision. Besides, make sure you provide all the correct information to ensure a successful claim settlement.

Warm Regards,
Ketki Jadhav
Content Writer