Term Insurance

Why Should You Check The Insurer’s Claim Settlement Ratio Before Buying Term Insurance?

by SMCIB on Wednesday, 26 April 2023

Why Should You Check The Insurer’s Claim Settlement Ratio Before Buying Term Insurance?

Whenever you purchase any product online, you take into account various factors, one of the most important being customer ratings and reviews. This helps you ensure the product has been ‘liked’ by other customers and has surpassed the benchmark for quality. For example, if you want to buy a microwave, you look at how many stars people have given it and what they have to say about the brand to ensure you’re making a safe choice.

Similarly, when it comes to term insurance, you need to assess the quality of the insurer to ensure you get the best protection for your loved ones. For that, you can use a metric called the Claim Settlement Ratio. It helps you determine the insurer's reliability in terms of paying out claims and whether they are likely to settle your family's claim in the future - if it arises.

In this article, we will discuss everything about the Claim Settlement Ratio under Term Insurance.
 

What is Term Insurance?

Term insurance is a wise and pocket-friendly way to secure the financial future of your loved ones in your absence. It is the most straightforward of all life insurance products and provides your family members with a fixed sum of money if you pass away when the plan is active, helping them realise their financial obligations and goals without any hurdles.

To make sure your family uses the money in the best possible way, you need to choose the right claim payout option. The claim amount will be disbursed to them accordingly. They can receive it as a lump sum, monthly income, etc.

There is, however, one disadvantage to buying term insurance - you won’t receive any benefits if you survive the policy term.
 

Term Insurance Claim Settlement Ratio: What is it?

Claim Settlement Ratio (CSR) measures the performance of insurance companies in terms of settling claims. It helps you determine the company’s reliability, efficiency, and trustworthiness during the claim process.

 CSR is calculated as the total number of claims settled by the insurance company during a particular financial year divided by the total number of claims received by it during the same period.

So -

Claim Settlement Ratio = No. of claims settled/No. of claims received X 100

For example, let’s say an insurance company received 100 term insurance claims during a particular financial year and settled 95 of them.

CSR = No. of claims settled/No.  of claims received X 100
      
 = 95/100 x 100  
        = 95%

So, the insurance company’s claim settlement ratio is 95% for the given financial year.


Why Should You Check the Insurer’s Claim Settlement Ratio?

If you are the sole breadwinner of the family, your family members may depend on you financially for their lifestyle and goals. Have you thought of what would happen to them if you were to pass away? Life is completely uncertain and while the emotional pain of losing a loved one cannot be compensated, term insurance can at least ensure your family has the necessary financial backup they need - enabling them to move on with their lives.

To ensure this goal is achieved and your family receives the claim amount without any hassles if an unfortunate contingency occurs, it is imperative to do your due diligence to find a reliable insurer. For that, you need to carefully review their Claim Settlement Ratio as this will provide insight into whether they are credible and capable of paying claims.

? An insurer with a high claim settlement ratio shows that they are reliable and trustworthy, as it reflects their ability to fulfil their obligations. It showcases a good track record of honouring claims, which is a green flag for your loved ones.

? If an insurer has a lower claim settlement ratio, they are less likely to settle claims. Ultimately, this could create obstacles and hassles for your family during an already difficult time.
 

A Few Important Things to Know About Claim Settlement Ratio

Keep this in mind! ?
 

? It is not the only factor you should use to gauge an insurer’s performance
Even though a high claim settlement ratio is a good indicator of an insurer's reliability and track record, you should not rely on it solely, since it doesn’t necessarily ensure a smooth insurance journey - one that’s catered to your and your family’s needs. Many other factors such as, premium amounts, policy features, benefits offered, customisation options, customer service, the financial stability of the insurance company, etc. need to be considered. Ensure you weigh each of these factors carefully - so you can choose the right insurer for your insurance journey.

 

? You need to assess it over a long period of time
To evaluate an insurer's performance, it is better to look at its claim settlement ratio over a few years instead of just one year. This will give you a more holistic view of their overall efficiency and consistency regarding claims.
 

Where Can You Find the Claim Settlement Ratio of Insurance Companies?
You can check the Claim Settlement Ratio of any insurance company either by visiting the -

? IRDAI website
The CSRs of different insurance companies are published in the annual report of the Insurance Regulatory and Development Authority of India (IRDAI).

Insurer’s website
Insurers publish their CSR on their own website.

 

Conclusion

Claim settlement ratio is a crucial factor to consider when choosing an insurance company. It indicates how well an insurer has handled claims in the past and how reliable they are. It reflects the probability of your family’s claim being successfully settled, in the event it arises. However, CSR should not be the only metric used to assess an insurer's worth. You need to evaluate various other aspects such as the premium rate, policy coverage, customer service, etc. - to get a comprehensive picture of the insurer's performance and make the best possible decision for your insurance needs.

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