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Importance of Claim Settlement Ratio in India before buying Term Insurance

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Does the claim settlement ratio (CSR) play a vital role while buying a term insurance policy? Why should one consider CSR before purchasing an insurance plan? How important is it? If you have multiple questions like this in your mind, you will undoubtedly get your answers here!

Similar to any other factors like premium, sum assured, term period, the claim settlement ratio is also an essential factor to consider in the term insurance buying process. So here we see in brief the claim settlement ratio and its importance.

What is a Claim Settlement Ratio?

Claim Settlement Ratio implies the number of claims paid against the number of claims made in a year. In other terms, the higher the ratio, the better reputation the insurer has. Thus, it gets essential to check the claim settlement ratio when selecting an insurance company.

The IRDAI – Insurance Regulatory and Development Authority of India every year releases the claim settlement ratio of life insurance companies. Therefore, any potential policyholder needs to check such data before deciding to approach an insurer and buy a term plan. This claim settlement ratio determines the maximum benefit you will get for your efforts put all through the years of the term period.

During the claim settlement process, the settlement is defined as the percentage of the total number of claims paid out by your insurance company. This is done by calculating the total number of received claims vis-a-vis settled claims. For instance, if the company you have chosen has a settlement ratio of 98%, then it means that they have settled 98 out of 100 claims, and the remaining two claims are rejected.

Key points to know about insurance claim settlement in India:

Before choosing the term insurance, here are key points that you should keep in your mind when considering the settlement ratio:

  1. This ratio is calculated as the total number of claims approved / total number of claims received.
  2. This is measured for all insurance products by all insurance companies. This claim settlement ratio is for both term plan and ULIPs plans as well, and it is not just provided for one single product of an insurance company.
  3. This ratio should be consistent; therefore, try to check the settlement ratio for the last five years of the company, and if there is consistency, you can rely on the insurer.
  4. You can check IRDAI’s annual report on the public and private insurer’s settlement ratio. This can be checked online too on their official website.
  5. You should also try to check the number of claims received by an insurance company. It would be best if you also tried to check how recognized and big the insurance company is before you choose a product.

 

Importance of Claim Settlement Ratio in Term Insurance?

The uncertainty of life and the increasing cost of living has made everyone look for some protection for their family. Understanding the importance of an effective insurance plan with a high term insurance claim settlement ratio is crucial when this is the scenario.

At the time of claim, the settlement amount received from the insurance company is the maximum benefit that the nominee or the family gets upon the policyholder’s demise.

This claim settlement ratio differs from company to company and choosing the term insurance company and policy having the highest ratio is very important.

How is the Claim Settlement Ratio Calculated?

By understanding the factor about how CSR is calculated, you may get a better idea of it. Of course, this might be a bit of a complex process, but still, you can easily understand it by taking some effort.
Although there are many factors involved in it, here is a mathematical formula, which can help you quickly calculate your CSR:

Claim settlement ratio = All claims settled or paid / Claims received during the year

For instance: Out of 5,00,000 claims made by customers, and the insurance company settles only 4,00,000 claims, the claim settlement ratio will be 80%. This implies that the insurer has settled only 80% of the customers, and the rest of the claims are rejected.

Importance of choosing a high Settlement Ratio:

After knowing the exact factor that is going to determine the claim settlement ratio calculation, here are a few elements that are going to determine the reasons why you should choose a high claim settlement ratio:

  • It helps to understand how an insurer handles the claims from the policy nominees.
  • It helps to gauge the insurance company’s credibility and influence your purchase decision.
  • Since a high claim settlement ratio implies more claims being settled by the insurance company, it builds confidence among the policy buyers when buying the policy.

 

With a lot more to know about the claim settlement ratio of a company, remember, not all insurance companies have the same claim settlement ratio. Therefore, you need to make some effort to cross-check the CSR values and decide to choose the one that will give you maximum benefits for the premium you pay and sum assured you expect to get.

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