For Vikas, a junior accountant, nothing was more important than his family’s security. Which is why, he invested in a term plan with a sufficient death benefit. Despite supporting a large family on his meagre income, he diligently paid the premiums. Tragically, Vikas was killed in a road accident a few years later. When his family approached the insurance company to claim the policy benefits, they were surprised to see the insurance company swiftly processing the claim. Within a short period, Vikas' family received the full insurance payout.
This is because Vikas was wise enough to research and choose an insurance provider that was known for its high claim settlement ratio, and had a strong track record in claim settlements.
What Is A Claim Settlement Ratio And Why Is It Important?
People who shop for life insurance policies usually question the premium cost, payment flexibility, and coverage amount. However, what trumps these factors is the insurance company’s claim settlement ratio (CSR).
Claim settlement ratio is the percentage of claims that the insurer has paid out against the number of outstanding claims received during a particular financial year. Higher the claim settlement ratio in life insurance, the more reliable is the insurance company.
Afterall what is the point of buying a policy if you are going to be denied your due?
How is the claim settlement ratio calculated?
It represents the percentage of claims settled by the insurance company compared to the total number of claims received in a given period.
Insurers calculate the claim settlement ratio using the following formula:
CSR = (Total number of claims settled and paid in a year) / (Total number of claims received in that same year) x 100
So if an insurance company has received 1,300 death claims between 1 April 2022 and 31 March 2023, of which 1250 claims were paid, the insurer’s claim settlement ratio is (1250/1300)*100 = 96.15%.
Claim settlement ratio is a key metric that determines the insurance provider’s financial health and credibility. A company with the higher claim ratio in life insurance confirms that payouts are made as committed, which makes it invest-worthy and reflects their reliability in fulfilling policy obligations. A low CSR score is a red flag.
Factors that affect claim ratios
However diligent you are with your disclosures and paperwork, there are still many factors that can affect claim ratios. These are listed below along with tips on how to mitigate these risks.
Tip: When purchasing the policy, ensure that you verify the company’s claim ratio. An 80% or higher CSR shows solid performance. Above 90% signals a value product.
- Reputation: Companies with a long history of providing insurance services and which are backed by most policy buyers are the ones to be trusted.
Tip: Do your research and speak to trusted financial experts.
- Claims process: Expect a delay or deductions with companies that have a claims process which is haphazard or time-consuming.
Tip: Before signing on the dotted line, check how quickly the insurer processes claims on an average, to get an idea of their efficiency quotient.
- Dishonest disclosures: Have you been honest about your medical history and lifestyle? Has something cropped up which you hadn’t disclosed?
Tip: However detrimental it may seem, be upfront about everything. If something comes up later on, your claim could be denied.
- Incorrect or delayed paperwork: Make sure to submit all the required paperwork and within the stipulated timeframe to avoid any delays or penalties.
Tip: File your original policy and supporting documents and keep in a safe place so that you’re not scrambling later.
- Nomination inaccuracies: If you have submitted incorrect or incomplete nominee information, you may be required to submit more documents to validate the same.
Tip: Keep the nominee information up to date and accurate to avoid claim rejection or delays.
Benefits of choosing a term plan with a high claim settlement ratio
Opting for a high claim settlement ratio in term plan gives you the peace of mind that your family is in good hands, should anything unfortunate happen to you.
With a claim settlement ratio of 97.04% (Retail claims), IndiaFirst Life Insurance guarantees 100% genuine claim settlement with these term plans - IndiaFirst Life Plan, IndiaFirst Life Guaranteed Protection Plus Plan, IndiaFirst Life Radiance Smart Invest Plan, IndiaFirst Life Wealth Maximizer, and IndiaFirst Money Balance Plan.
While a high claim settlement ratio in term insurance is important to zero in on an insurance company, there are other factors you must consider like insurer’s financial stability, customer service, coverage options, and claims process & duration, before purchasing the policy.
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