How do you determine or choose the best policy from the best insurance provider? The answer is simple - by looking at the claim settlement ratio.
The primary reason why you buy term insurance is to provide financial security for your loved ones in case you die. As the primary breadwinner of your family, it is your duty to ensure your dependent family members have all the financial means to carry on with their livelihood in your absence. The term insurance plans allow you to create this assurance and keep them economically protected even in your absence. This is why you should choose the best policy from the best insurance provider to ensure they get the finances after you are gone. How do you determine this? The answer is simple - by looking at the claim settlement ratio.
What is a Claim Settlement Ratio?
The claim settlement ratio is calculated by considering the total number of claim requests received and the total number of actual claims paid. For example, if the insurer receives 100 life insurance claim requests in an accounting year and it pays out 95 of those, the claim settlement ratio of the company will stand at 95%.
Claim Settlement Ratio is the total sum of claims settled in a particular year divided by the total number of claims received in that particular year multiplied by 100.
This is an excellent indicator of the integrity of the term insurance companies. Hence, you should always choose an insurer that has a high claim settlement ratio.
Factors That Affect The Claim Settlement Ratio
While the claim settlement ratio is a very important marker, you should not base your entire decision on the insurer’s claim settlement ratio while purchasing the policy. At times, the claims are rejected because of some very valid reasons and this pushes down the overall claims ratio for the company. Some of the reasons are:
Early Claims
Many claims on the term insurance plans are rejected because the claim is made too early on. According to section 45, all insurance plans can be questioned on grounds of non-disclosure or misrepresentation of material facts within a period of 2 years from the date of policy inception. Thus, if there is an early claim, i.e. within the first 2 years of the policy inception, the insurer can surely investigate to find out if there was any “non-disclosure, or misrepresentation of material facts” at the time of the filling up the proposal form. If there is a discrepancy found, the policy could be considered null and void and the claim would be repudiated.
Fraudulent Claims
This is a common problem in the insurance industry. Many fraudulent and illegal claims are made. People buy the plans for their family members by hiding or manipulating the date during the application process.
For example, if the plan is bought for a 45-year-old cancer patient without disclosing his real age and health condition and he dies soon, the insurer will not honour the claim. Investigations are carried out to detect such frauds and once found, the claim is rejected.
Non-Disclosure or Misrepresentation of Material Facts
According to the first principle of insurance, Uberrima Fides or utmost Good Faith; it is the policyholder’s responsibility to disclose all material facts which might change the underwriter’s decisions. So, you need to be very honest when buying the plan. If you withhold information or lie, your claim is likely to be rejected on grounds of “Non-disclosure or misrepresentation of material facts” and there is nothing that you can do at that point in time.
For example, if you smoke, you need to declare it. Else, after the claim investigation, it will be detected and your family will not get the life insurance claim.
Shortcomings of Claim Settlement Ratio:
Claim Settlement Ratio is an important ratio for you to consider before opting for your Term Insurance Plan, but it is not the be-all and end-all. There are other aspects that you need to consider other than CSR as there are certain real shortcomings of CSR such as: The Claim Settlement Ratio does not mention the total value of the claim.
For example, if the company has settled 99 claims of Rs 1 CR and rejected 1 claim of Rs 1 lakh; even then the CSR of the company would be 99% irrespective of the total % of claim amount settled at 99.89%.
The Claim Settlement Ratio Does Not Specify the Claim Experience.
For example, if the company settles claims with a TAT of 3 days or 3 months, is not specified in the CSR data. Neither the claim process nor the ease of claim is defined by the Claim Settlement Ratio.
So, the Claim Settlement Ratio is an important ratio to be considered but there are other aspects that you should also consider while opting for your Term Insurance Plan.
Choosing the Correct Term Policy
As you know, there are many term insurance companies that offer many term plans. While the claim settlement ratio is definitely a very important factor to consider when choosing between the many term insurance plans, you should also keep an eye on the following:
Covers
This is the most important factor to keep in mind when choosing term insurance. Make sure you get a plan that is comprehensive and has every cover that your family needs. Also, look at other factors such as tax savings. Add riders to the plan to make it flexible and tailor-made for your needs.
Cost
Understandably, you need to get a plan that is affordable. If the premium is too high, you may struggle to pay and keep the policy active.
Claim Process
The insurer you choose should have a simple and hassle-free claim process that your dependents can navigate through after you are gone. These factors will help to choose the best cover from the best term insurance companies.
You need to be completely honest and transparent when you buy term insurance. If you make any error, whether knowingly or unknowingly, the insurance provider may reject the claim after your demise. Sadly, you won't be around at the time to help your family in that unfortunate situation. Hence, while getting the term cover from a good insurer with a high claim settlement ratio, also be clear in your intentions and get the best plan in the best possible manner.
Also Read: Should You Revive Your Old Term Insurance Policy or Buy a New One?