Claim settlement ratio? repudiation ratio / rejection ratio or the largest Insurance company?
Who is the best insurance company for you? How to choose the best company and best policy?
The main purpose of buying term insurance is to ensure that after the death of policyholder, nominee or legal heir gets the sum assured. It could be very sad in case the insurance company rejects the policy claim to the nominee. Hence, it is important to choose a right insurance while keeping in mind about the common exclusions.
While the popularity of Term insurance is catching pace, so is the complications coming to the fore. Many people including ones who sells endowment policy claims that in term insurance nobody gets money back.
Well that is not true, term insurance is comparatively new and still finding its base, awareness is low and it will gain pace with time as people get hands on experiences. However, as it is likely and we all hope that most of the policyholders will outlive the policy term, (mostly ranges till 60-70 years of age), people feel it is unreasonable and unnecessary, many end up buying the cheapest policy online without any homework. There are also cases of hiding (or non-disclosures) of medical conditions to get cheaper premium, and not writing hobbies (adventures, bunjee jumipng, horse riding etc) to avoid rejection while buying the policy. There is a list of common exclusion which is followed by the life insurance companies. Apart from the common exclusion, we should also educate ourselves on criteria on how do choose the best insurance company, which will stand in our favour incase of life loss of the policy holder.
You can give a weightage based marking system on the below mentioned parameters. Keeping 5 marks for each criteria, and marking 1 for lowest performance on the parameter and 5 for the highest.
Though do check out the premium amount of each insurance, but it should not be a criteria of choosing insurance
Here is a list of criteria I personally followed while choosing term insurance –
Which company is offering your desired insurance cover and package – List down what is the kind of cover you are looking at, are you looking for a rider like Personal accident cover/ Critical Illness benefits or Premium waiver or multiple option of payout of death benefit. First step is to short-list your requirement.
Tip – Its a good idea to bundle your Critical Insurance cover with Life insurance and not health insurance, as in life insurance you lock your premium of entire term, while Health insurance premium keeps increasing based on age and claims
Company history/reputation – In financial services, trust is the first factor. So, knowing how the Brand in general is perceived by you, your circle of friends who happens to work in financial services can come handy. Doing a google check on the news on the company/ promoter, checking its review would be helpful. Check how long the company is in operation specially in India and how the news have been on their claim settlement experience (simple google check – insurance company + issues on claim settlement) will give you some snapshot on how the negative experience have been on the particular company. It is good idea to short list companies a per their age – ideally more than 5 years of operations.
Do keep a criteria on How long they’ve been in business; In which states they sell their products and how is their quality of service
Claim settlement Ratio – A crucial matrix for shortlisting the insurer. It is considered that higher the claim settlement ratio, higher the chances of settling your insurance claims. While considering an insurance company, check repudiation ratio and rejection ratio of the claims too.
Based on 2018-2019 IRDA data on claim settlement ratio of Life Insurance companies
According to latest Annual report of IRDAI, Claim settlement ratio of LIC was at 97.79% as at 31.03.2019 when compared to 98.04% as at 31.03.2018. For private insurers, settlement ratio had increased to 96.64% during the financial year 2018-19 when compared to 95.24 % during the previous year
Claim Amount settlement ratio – Claim settlement ratio can be looked at in two ways, first is no. of claims settled based on claim received, a volume measure and second is the ratio of settlement ratio based on claimed amount
Claim repudiated / claim rejection ratio – This is an important parameter, in any scenario, if this ratio is closer to one or above 1%, just tick-off the insurance company off your list, even if it is meeting all other criteria
Image taken from IRDA Annual report 2018-2019
Pending claims ratio – This figures shows what are the pending claims application lying with insurance companies. Ideally a company should close the claim within 30 days, but there are times, when the companies take a lot of time to conclude their investigation resulting into agonizing waiting game.
Solvency ratio – Financial strength of your insurance is important. Minimum solvency ratio of insurance should be 150% as per IRDA. Higher solvency ratio is a good way to look at it, however, the decision should be made keeping in mind the claim settlement ratio as well.
We need to keep in mind Term policy is taken for a period of 25 – 35 years term, and all these ratios can alter in this time frame. Given all the above parameters play important role in deciding life insurance company and Term policy, the first priority remains filling the insurance application truthfully to ensure claims don’t get rejected.
Keep reading my blogs on investments, insurance, mutual funds, second income options, and many financial education topics.
Must read for Financial Education –
Let’s Talk Money – Monika Halan
I will teach you to be rich – Ramit Sethi
Rich Dad Poor Dad – Robert Kiyosaki
Easy Money Triology – Vivek Kaul
Aapka Paisa Aap Samhalein (आपका पैसा, आप संभालें)- Rajnish Kant
