Important but Less talked about Parameter to be Considered Before Buying Term Insurance

When purchasing term life insurance, you don’t want your family struggling to receive the claim amount during an already tough period they are going through due to the demise. As a result, it is essential to look beyond the most common factors people look for when they buy term life insurance plans, such as affordable premiums and choose a reputable insurer who will handle the claim swiftly and fairly.

While there are various important elements to consider when choosing an insurance provider, one essential aspect to carefully evaluate is the Claim Settlement Ratio (CSR). If understood carefully, this can help you assess the insurer’s ability to fulfil claims and thus, help you make the best decision.

What is the Claims Settlement Ratio?

The claim settlement ratio (CSR) is an important factor to consider when purchasing any life insurance plan. It reflects the insurance provider’s reliability in settling claims under the policies it has issued. Simply put, it allows you to calculate the total number of claims successfully resolved by an insurance company out of all the claims received in a given year. A high claim settlement ratio indicates that the provider is trustworthy and has a good track record of honouring claims. The Claim Settlement Ratio (CSR) is one factor that may help policyholders assess whether or not an insurance firm can be trusted. As a rule of thumb, choose insurers with a CSR of 95% or above.

The Claim Settlement Ratio (CSR) is important for policy buyers to evaluate an insurance company’s trustworthiness, reliability, and widespread acceptance. It is expressed as a percentage by the Insurance Regulatory and Development Authority of India (IRDAI).

How is the Claim Settlement Ratio Calculated?

The claim settlement ratio can be calculated using the following formula:

CSR = (total number of claims settled/total number of claims received) x 100.

Let’s explain this with an example.

Suppose insurance company ‘A’ received 1000 life insurance claims in a given year. Out of these, 900 claims were successfully settled. Company A’s claim settlement ratio (CSR) is calculated as (1000/900) times 100, which equals 90%.

This signifies that A settled and paid out 90% of the claims it received over a given period.

Why is the Claim Settlement Ratio Important?

Here are a few reasons why claim settlement ratio is an important consideration to consider when you buy term life insurance:

Trust and Reliability: Insurance is based on trust. A high claim settlement ratio indicates that the insurer is trustworthy and honours the claims it receives. It fosters customer confidence in the insurer’s ability to process their claims in a timely manner. It instills confidence in policyholders by ensuring that their claims will be resolved fairly and swiftly. A high Claim Settlement Ratio suggests that the insurer is committed to keeping its commitments.

Financial Security: Another advantage of calculating the claim settlement ratio is the guarantee that your beneficiaries will receive the promised financial assistance in the event of your unfortunate death. This gives you piece of mind knowing that your family’s finances are protected.

Informed Decision Making: Before you buy a term life insurance policy, the claim settlement ratio is an excellent resource for evaluating different insurance companies. A high CSR ratio suggests an efficient claim process, which allows you to make educated decisions.

Customer Satisfaction: Claim settlement experiences have a substantial impact on consumer satisfaction levels. If policyholders experience issues or delays in paying their claims, they may get frustrated and dissatisfied. A bigger Claim Settlement Ratio, on the other hand, suggests that the insurer has strengthened the efficiency of its claims process, resulting in quicker and more seamless payments. Customers who are satisfied with their insurer are more likely to continue doing business with them and even suggest their services to others.

 Reputation and Credibility: All insurance firms are in the process of establishing a good reputation and credibility in the market. A high insurance Claim Settlement Ratio contributes to the insurer’s positive brand image. When prospective consumers evaluate insurance companies, the Claim Settlement Ratio is frequently cited as an important criterion. A company with a consistently high Claim Settlement Ratio is perceived as trustworthy and dependable, enlisting fresh customers and improving its market position.

Regulatory Compliance: To protect policyholders’ interests, insurance companies must comply with regulatory requirements. Regulators frequently monitor the Claim Settlement Ratio to ensure that insurers act fairly and in accordance with industry norms. A low-term insurance settlement ratio could result in scrutiny from regulators, potentially resulting in penalties or other consequences. As a result, maintaining a high ratio is critical for insurers to meet regulatory requirements and retain their licenses.

Why is Buyer Disclosure Important for Better Claim Settlement Ratio?

A strong claim settlement process is essential for both policyholders and insurers, providing fair and timely payment. Policyholders must provide all relevant information when purchasing or claiming a policy. This transparency reduces disputes and improves the Claim Settlement Ratio. The claim ratio is a significant indicator that represents an insurer’s capacity to settle claims, assisting policyholders in choosing a reputable provider.

Failure to disclose necessary facts or information while obtaining a policy can have serious consequences, including claim denial or delayed payment. Nondisclosure may be considered a violation of contract by insurers, jeopardizing the entire claim procedure. Choosing an insurer with a high settlement ratio and maintaining proper documentation will help secure policy benefits and limit the possibility of claim rejections, providing beneficiaries with future financial security.

Key Takeaway

When you buy term life insurance, the claim settlement ratio might help you in determining an insurer’s credibility. However, it is critical to look beyond this ratio and compare insurance companies based on other criteria as well, such as coverage level, premium cost, rider options, and customer service. This will allow you to determine the best alternative and make an informed decision.