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How is the claim settlement ratio a critical component of term insurance?

 

Everyone does financial planning. But it is important to smartly plan your finances. In a similar context, it is crucial to select an appropriate insurance plan in your financial portfolio. The insurance policy is an assurance to your loved ones that their needs will be met even when you are gone.

Moreover, you can also avail tax benefits while creating a legacy for your dependents. With a multitude of options, it becomes confusing in selecting the right insurance policy. But the most preferred is a term insurance policy. A term plan is for a pre-specified duration. Term insurance benefits include lowest premiums across all plans. Along with it, one can avail add-on riders so that your insurance policy offers comprehensive coverage. The entire policy tenure has the same amount of premium which is easy on the insured’s pocket. Also, tax benefits are available for the premiums paid.

Why Is Term Insurance Important For Everyone - HDFC Life

Now that you are aware of some of the benefits of a term insurance plan, it is necessary to be aware of how to select your insurer. One key factor that is an adept way of shortlisting your insurer is checking the Claim Settlement Ratio or also called as the CSR.

What is the Claim Settlement Ratio?

Claim settlement ratio or CSR is the ratio of the number of claims cleared by the insurer in a period. It is an indicator of how many insurance claims are settled in a financial year. The calculation is based on the number of claims settled vs. the number of claims received.

It can be presented in an equation as:

Claim settlement ratio = (No. of claims settled/No. of claims received) * 100

Let us look at an example to understand it better-

If an insurance company receives 5000 claims during a year and the insurer honours 4750 claims, the claim settlement ratio for the company is at 95%. The balance 5% are known to be rejected claims.

Why is Claim Settlement Ratio Important?

CSR or claim settlement ratio is important as it helps the insurance buyer in determining the reliability of the insurer. The sole reason for buying an insurance plan is to offer some level of financial security to your family in case of your demise. It is crucial from a buyers’ point of view because if claims are not honoured, the whole process of buying a term life insurance becomes worthless.

In some cases, the beneficiaries are solely dependent on the financial support from the insurance claim. If such a claim goes unsettled, it can be extremely difficult in already stressful times of losing a family member. Thus you must check the claim settlement ratio of the insurance company before finalising your purchase decision. Also, remember to compute premiums using a term insurance calculator for different amounts of sum assured. Financial advisors suggest checking the CSR for the plans having lowest premiums and highest benefits.

A disclaimer regarding claim settlement ratio is that it is calculated for all products sold by the insurance company. So at times, it becomes difficult to estimate the individual CSR ratio for each insurance plan. Higher the claim settlement ratio, higher is the company’s ability to honour the claims made by its customers.

You can check the claim settlement ratio published by the IRDA (Insurance Regulatory and Development Authority), in its annual report each year. The report contains the details of the performance of the insurance companies in India.

There is no doubt that other insurance plans might be offering more features, but the one with the highest value for money proposition is a term insurance plan. Make sure you check the term insurance age limit in case you want to buy one for your family members too. Remember, if your insurance plan does not check all the right boxes, even a cheaper option is of no use at its maturity. Make sure you take into consideration the claim settlement ratio while deciding on a term insurance plan.

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I work for WideInfo and I love writing on my blog every day with huge new information to help my readers. Fashion is my hobby and eating food is my life. Social Media is my blood to connect my family and friends.
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