Why should you know about the Term Plan Claim Settlement ratio?

Mr. Sinha bought a term insurance plan with a sum assured of Rs 1 crore from a newly launched insurance company on the advice of an insurance agent. He hoped the proceeds from the policy would come in handy for his wife and two kids in case anything happens to him. Unfortunately, Mr. Sinha died in five years of taking the policy due to prolonged sickness, leaving his entire family in despair. 

With Mr. Sinha no more, the responsibility of taking care of their business and family fell on Mrs. Sinha, who was still recovering from the loss of her husband. She is the legal nominee assigned by Mr. Sinha in his term plan, she sent a death claim request to the insurance company, but her claim got rejected as the company needed more details from her. Her relatives and friends came to her rescue and supported her family for some time till they got back on their feet.

If Mr. Sinha had paid little more attention to searching for the best claim settlement ratio in the term plan before buying his policy, his family wouldn’t have to go through such turmoil after his passing away.

There are many insurance providers in India, with each offering a diverse set of policies for specific needs. But the primary reason to buy a term insurance policy is for the high sum assured offered under these plans for a low premium. In case of any unfortunate event of death or disability, the insurance provider settles the claim and pays to your loved ones, which will help your family stay financially independent, even if you may not be around anymore.

Although you purchase a policy, hoping the provider will settle the claim smoothly if there is a need, sometimes, they may also reject the claim citing various reasons. And it is necessary to pay attention to the claim settlement ratio of term insurance companies before zeroing in on the policy of your choice.

What does the claim settlement ratio mean?

The percentage of claims settled by an insurance provider from the total claims received in a year is termed as the Claim Settlement Ratio (CSR).

Claim Settlement Ratio = (Number of claims approved successfully/number of claims received) * 100

Using the above formula, for example, if an insurance firm receives 100 claims in a year but was able to settle only 97 of them, their Claim Settlement Ratio is 97%.

A high CSR denotes the company as reliable and trustworthy for a policyholder to get their claims settled on time. On the other hand, an insurance company with low CSR means their settlement time is high, or the rejection rate is more.

To bring transparency and make decision-making more straightforward, the Insurance Regulatory and Development Authority of India (IRDAI) publishes a report of Claim Settlement Ratios (CSR) on their website. This report gives an overview of the number of claims received and settled by all the life insurance companies in a year. Anyone can get to know these statistics quickly by visiting the official website of IRDAI.

Are you looking at CSR correctly?

The claim settlement ratio is undoubtedly an essential factor in evaluating the performance of an insurance company. But it should not be the only criteria, as it also has few disadvantages.

For example, if an insurance company A, receives 100 claims and managed to settle only 97, their CSR would be 97%, which is a good number. There is another insurance company B, which has settled 9400 claims out of 10,000 claims received, recording a CSR of 94%, which is lower than company A.

But, did you note the number of claims received by company A was low compared to the claim requests received by company B? It means company B is considered trustworthy and has more customers than the former. Therefore, it makes sense to not only look at CSR alone but also focus on the number of claims received by each company before coming to a conclusion.

List of IRDAI Claim Settlement Ratio of Life Insurance Companies in India

Here are the claim settlement ratio (CSR) of top insurance companies in India for the year 21, as per the IRDAI report. 

An important point to note here is that the claim settlement ratio is calculated based on all the claim requests received for all insurance policies provided by the company. It includes term plans, endowment plans, money back policy, ULIP’s, etc.; IRDAI does not publish the term plan claim settlement ratio separately.

How to avoid insurance claim rejection? 

You would now know the meaning of the claim settlement ratio, how it is calculated, and how to check an insurance company’s CSR before buying a term plan or any other insurance product. The next step is to make sure that your claim doesn’t get rejected. Here are some crucial pointers that you can exercise to stay safe and informed.

1. Do not conceal information: The number of reasons for claims to get rejected is due to wrong information or concealing details at the time of registering the policy. Make sure to disclose all necessary info related to your health, medical condition, smoking/ drinking habits, etc., in the policy document. This helps the company assess the risk correctly. To save on premium, never hide your factual information as it could land you in trouble at the time of claim processing.
2. Fill the forms yourself: Many times, it is the agent who fills the insurance application form on behalf of the policyholder. There is a chance for the agent to miss out or knowingly did not reveal certain few critical features of the policy. In some cases, they might forget to enter your personal information as well. Hence it is always wise for you to fill the form yourself or be physically present with the agent while he is filling it and ensure all details are correctly entered.
3. Freelook period: Every insurance company provides a free look period of 15 days after you purchase an insurance policy, during which the policyholder may terminate the policy, if necessary, without any penalties or surrender charges. So, remember to go through the terms and conditions of the policy document in this period and if it doesn’t suit your requirement, be proactive to call the insurance firm and request them for termination immediately, so your initial premium payment can be refunded.
4. Informing your nominee or partner:  Once you have taken a term insurance policy, it is necessary to inform your nominee or spouse about the same. Make them fully aware of the policy, its benefits, and the steps to initiate claim processing just in case of any untoward incident to yourself.

The bottom line is claim settlement ratio is an important factor to determine the credibility of the insurer. It ensures that you are in safe hands and your loved ones won’t face any problem while getting their claims settled when needed. So, hope you understood the importance of knowing the claim settlement ratio and make sure you check before buying a term insurance policy.