What's inside? 🧐
- Introduction
- What is a Claim Settlement Ratio?
- The claim settlement ratio of life insurance companies doesn’t give you the entire picture
- Ensuring that your family gets the claim amount without hassle, when you’re not around
Introduction
After days of anxiety, research and frustration of finalising all the customizations in the perfect term insurance policy, all you want to do is ensure that the claim settlement process is easy for your family. You face the most difficult question - which company to choose?
The sheer nature of a term insurance policy is that you wouldn’t be around, when your family will go to get the claim. And you definitely are concerned about which company will give them a smooth, straightforward process during the claim settlement.
As you start speaking to various insurance companies, you will come across this term - the claim settlement ratio. Insurers will flaunt a high claim settlement ratio as a reason why you should choose them.
But, is this the right approach? What does the claim settlement ratio even mean? Will a high ratio ensure that your family will get the claim without too much paperwork, back-and-forth or hassle? Or, is the claim settlement ratio completely irrelevant?
Well, let’s get to the bottom of the truth about claim settlement ratio, once and for all!
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What is a Claim Settlement Ratio?
The claim settlement ratio formula calculates the percentage of claims an insurer has paid out during a financial year, in relation to the total number of claims they’ve received. For example, if an insurer has a claim settlement ratio of approximately 98%, this means that - out of every 100 claims they received in the last financial year, they have settled 98 of them.
This table published by IRDAI for the financial year 2018-2019 gives a snapshot into the claim settlement ratios of the insurance companies in India.
As per this chart, TATA AIA life tops the chart, followed by HDFC Life and Max Life Insurance. So, does it mean these are the three best insurance companies and that you should choose one of them?
It isn’t that simple.
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The claim settlement ratio of life insurance companies doesn’t give you the entire picture.
Doesn’t give the probability that your claim will be settled. For one, it is only an indication of the past settlements, and does not give the probability that your family’s claim will be settled. It’s not like having a high claim settlement ratio will improve their chances of getting the claim settled, or a low ratio reduces the chances.
Does not tell you the amount of claim settled. It is totally possible that a particular insurer has settled several claims of very low value - and rejected those >with a high value. In effect, he will have a high claim settlement ratio - but they might have only paid out very >little money.
Doesn’t indicate how long claims take to get processed Some insurers give customers a smooth claims process, and some don’t. Would you rather go with a company that has a high claim settlement ratio (say 99%) but takes an average of 4 weeks to settle claims; or a company with a slightly low (say 98.5%) ratio but takes only 1 week on average to process claims? Which do you think is a better experience for your family?
Says nothing about the claims experience When your family loses you, the last thing you want is they need to follow up several times with the insurance company to get what is rightfully theirs. And a claim settlement ratio speaks nothing of this experience.
Says nothing about financial control A good insurer has strong financial control, and is effectively able to identify fraudulent, unreasonable claims and reject them today - so the company can last another 30-40 years to pay your rightful claim. So, even with a high ratio, if the insurer has poor financial control - it doesn’t help you.
Might include settlements of a variety of claims Most claim settlement ratios are calculated across all products that a company offers like endowment plans, money back plans, group insurance plans etc. If you’re specifically looking for a term insurance policy, however, this ratio might be misleading.
Ratio of Valid claims paid : Valid claims received. A claim settlement ratio does not show how many valid claims came in and how many valid claims were settled by the insurer. There are instances where the insurer settles fraud claims too. The claim settlement ratio doesn’t show us whether the claim settled by the insurer is valid or not.
A good insurer has strong financial control. It is their responsibility to segregate valid claims from invalid ones - so that they stay in business until a time - when your claim occurs. Having said that - the claim settlement ratio doesn’t consider this fact.
A good insurer might end up having a bad claim settlement ratio in a given year - if they come across several fraudulent claims.
Claims settled for a specific product. If you want to know the claim settlement ratio for a term insurance policy, the ratio you’re seeing on the insurer’s website might be misleading. That is because the claim settlement ratio is calculated for all the products like endowment plans, group insurance plans, etc. Remember - the sum assured in a term plan can be very high compared to any other type of investment. So, there might be a possibility that your insurer is rejecting claims of a term plan and paying for other plans - still effectively maintaining a high ratio.
Typically, a user wants to know if the insurance company is credible, if they will pay their claim, will their nominees face any hassles? Does the Claim Settlement ratio give any such information? - not at all.
So, when an insurer has an 89% claim settlement vs another who has a 99% claim settlement ratio, it does not give an objective, clear insight that there are lesser chances of a claim settlement in Insurer 1 Vs Insurer 2.
An insurance company plays the role of a fiduciary custodian over the money it holds for its customers. A good insurer will evaluate all claims diligently - pay all valid claims - reject all invalid claims. An efficient Insurance company that rejects invalid claims and has a tight control on frauds, will have a negative impact on their claim settlement ratio, although it did the right thing of rejecting fraudulent claims.
Here are some such tips.
- Always fill the form accurately and honestly - so there is no discrepancy that becomes a reason for your claim delay/ rejection. Remember - you won’t be around to offer an explanation. Go through the claims process even before buying the insurance plan - make sure you’re doing everything right keeping in mind the end goal which is - a smooth claim. Take your nominee through this process, give them access to all the documentation they’ll need so they are well prepared for a situation, if and when it occurs.
If not the Claim Settlement Ratio, then what?
Everybody asked us this question, when we busted the myth around Claim Settlement Ratio. So, we dug up data across various sources including insurer portals and IRDAI website amongst others, and built MyInsureBuddy⭐Ratings - the first-ever unbiased and data-backed solution for insurance comparison. With over 100 parameters compared, across the top term insurance products in the country, this ratings product allows our community members to objectively compare products across insurers, and make a data-backed, informed choice. So, before you compare the claim settlement ratios of other companies, check out MyInsureBuddy⭐Ratings right away and find the right term insurance plan that fits all your needs - after comparing important parameters. Now, let's look at some things you should do to ensure your family has a smooth claim settlement.
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Ensuring that your family gets the claim amount without hassle, when you’re not around.
The only way to guarantee that your family will get the claim amount, without hassle is by filling out your proposal form with utmost care and sincerity.
- Always fill the form yourself, and do not let your adviser/ agent do it on your behalf
- Go through all the terms and conditions in detail, ask questions if necessary - before you sign the form
- Answer all questions truthfully and accurately - especially about any health conditions, family history you might have. The insurer will make their decision on the risk of covering you accordingly. If you have a pre-existing condition or some other complication, they might ask for a higher premium, go ahead and pay it.
- Understand the claim settlement process thoroughly, before finalising a term life insurance plan - don't just look at the claim settlement ratio.
- Take your nominee through this process as well - after all, they would need to go through all the paperwork and process to file for the claim later on.
Term insurance is definitely a simple policy. But, missing out on small details could make it difficult for your family when they go through the claim settlement process.
To help you make the right decisions throughout your term insurance journey, MyInsureBuddy has recently launched an eBook - The Ridiculously Simple Guide To Term Insurance.
Got a question you’d like to get clarified?
You can post it on the MyInsureBuddy Insurance Forum - and get answers from vetted experts, for free!