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Importance of Claim Settlement Ratio During Term Insurance Purchase
Mumbai, January 23, 2021
The primary objective of a term plan is to ensure the financial stability of your family in your absence. If their claim is rejected, the entire purpose of buying insurance coverage is lost.
Therefore, it is important to check the Claim Settlement Ratio (CSR) of the insurer before buying the policy.
The CSR shows the number of claims that are settled in comparison to the total number of claims filed during the year. Therefore, if the ratio is 93%, it means 93 out of 100 claims were settled.
A higher claim settlement ratio increases the chance that any claim filed by your nominees in the future will be settled. You must compare the ratio for various insurers to make an informed decision. Here are a few things to keep in mind while comparing the CSR:
It is measured by insurers for all products offered, which include term plans, unit-linked insurance plans (ULIPs), and others; individual product claim settlement ratio is not available
It should be consistent, and you can consider checking the same for at least five previous years
It is published by the website of the Insurance Regulatory and Development Authority of India (IRDAI) for all insurers
You may analyze the total claims received by the insurer during the year and how long the company has been in existence
Although it is essential to check the CSR, you must understand what is term insurance before uying the policy. This will ensure that you are clear about all the features and terms and conditions that affect claims and other factors.
While buying a term plan, the insurer’s CSR is a crucial aspect. However, it should not be the only decision-making factor. An insurance company with a higher settlement ratio may have oderate underwriting norms, which may result in buying a sub-par policy. Conversely, an insurer with a lower ratio at present does not necessarily mean it will continue to remain the same in the future. Additionally, do not find out about the number of settled claims in isolation; consider other factors like the total number of policies in force to make an informed decision.
Only the CSR is not sufficient to buy a term insurance policy. Here are some other factors you should consider:
1. Sum assured (SA)
Generally, the SA should be adequate to ensure that your loved ones can sustain their lifestyle nd meet future financial goals in your absence. You can calculate the SA by considering your regular expenses, inflationary increase, assets, and liabilities. SA is a vital aspect that determines the premium of a term plan. So, you can use an online term insurance plan calculator to inquire about the approximate amount for different covers.
2. Additional riders
Most insurers offer riders at an extra premium. Some of these include critical illness, waiver of premium, accidental permanent disability, and income replacement riders. Seek information about the chosen insurance company. Ensure that it offers riders based on your requirements before you make a choice.
In addition to the CSR, check the solvency ratio, which shows the company’s capability to repay its debts. Select an insurance provider that has been in the business for some years and has a good reputation and goodwill among its customers.
4. Financial situation
Last but not the least; assess your economic condition to ensure that you can afford to pay the term insurance premium. You need to pay the renewal premium on time during the policy duration to get continued coverage. One way to understand this is by using a term insurance plan calculator to estimate the amount and verify if it matches your current and future financial situation.
Additionally, it is necessary to buy a term plan for the right duration. The tenure should not be too short, wherein it ends before your family members achieve all their life goals. Similarly, it should not be too long, where it continues even after you have met your monetary objectives.
Now that you know what is term insurance and which parameters to look into while investing it, take these points into account, and make a wise decision.
(Disclaimer: This is branded content. Readers are advised to exercise due diligence and discretion before entering into any correspondence, investment, purchase, business dealings or any other decision on the basis of this content.)