All About Claim Settlement Ratio in Term Life Insurance

When buying term life insurance, the last thing you want is for your family to struggle with getting the claim amount during an already difficult time. Therefore, it’s important to go just beyond low premiums and select a reliable insurer that will process the claim swiftly and fairly.

While there are several essential factors that you must consider before selecting an insurance provider, one key factor that you must carefully evaluate is the Claim Settlement Ratio (CSR).

This will help you gauge the insurer’s ability to honour claims and make the right choice.

What is the Claim Settlement Ratio?

The claim settlement ratio (CSR) is an important metric to consider when buying life insurance. It reflects the efficiency of the insurance provider in settling claims against the policies it has issued. 

Simply put, it helps you measure the total number of claims successfully settled by an insurance company out of the total number of claims it received during a year. A high claim settlement ratio shows that the povider is reliable and has a positive track record of honouring claims. As a rule of thumb, opt for insurers with a 95% and higher CSR.

How is Claim Settlement Ratio Calculated?

The claim settlement ratio can be calculated using this formula:

CSR = (Total number of claims settled / Total number of claims received) x 100

Let us understand this with an example.

Suppose insurance provider ‘A’ has received 1000 life insurance claims during a particular year. Out of these, it successfully settled 900 claims. Using the above formula, the claim settlement ratio of company A will be:

CSR = (1000/900) x 100 = 90%

This means A settled and paid out 90% of claims it received during a period.

Why is Claim Settlement Ratio Important?

Here are a few reasons that make claim settlement ratio an essential factor to consider when buying life insurance:

1. Trust and Reliability

A high claim settlement ratio shows that the insurer is reliable and honours the claims it receives. It develops a sense of trust among customers that the insurer will process their claims promptly and efficiently.

2. Financial Security

Another benefit of evaluating the claim settlement ratio is the assurance that your beneficiaries will receive the promised financial support in the event of your demise. This provides peace of mind, knowing your family’s financial well-being is secure.

3. Informed Decision Making

The claim settlement ratio is an excellent tool for comparing different insurance providers when buying a life insurance policy. A high CSR ratio indicates an efficient claim process, helping you make informed decisions.

Other Parameters to Consider Before Buying Term Life Insurance

Besides the claim settlement ratio, there are several other factors that you must consider before buying a term life insurance. These include:

1. Coverage Amount

Start by evaluating your lifestyle, outstanding debts, and future expenses of your dependents. Select a coverage amount that perfectly aligns with these needs and provides adequate financial security to your family in your absence.

2. Premium Affordability

While you should not select a life insurance plan based solely on its affordability, it’s essential to ensure you can comfortably pay the premiums. So, select a policy that provides adequate coverage while aligning with your finances.

3. Rider Options

Many life insurance plans offer additional riders or add-ons on top of the standard policy to help you customise and enhance its coverage. These include:

• Critical illness rider, where you receive a fixed payout on being diagnosed with a critical illness.
• Terminal illness rider, where you receive financial support for treating a terminal illness.
• Accidental death rider, where your beneficiaries receive an additional amount on top of the sum insured if you pass away due to an accident.
• Partial or permanent disability rider, where you receive financial aid to cover a loss of income.
• Waiver of premium rider, where your subsequent premiums are waived off due to a loss of income caused by an illness or disability.

4. Amount Settlement Ratio

The amount settlement ratio (ASR) measures the total amount of claims settled by the insurer out of the total amount of claims received. Look for insurers with a high ASR as it indicates their ability to settle all claims fairly.

5. Volume of Claims Handled

The volume of claims handled by the insurer is the number of claims they have processed and paid out over a period. A higher volume indicates an efficient claim settlement process and shows the insurer is capable of fulfilling its obligations.

6. Customer Support

Another important factor to consider when buying a life insurance plan is the insurer’s customer service. Read customer reviews and testimonials to understand their experience with the insurance provider.

Key Takeaways

The claim settlement ratio helps you evaluate an insurer’s reliability when buying term insurance. However, it’s important to go beyond this ratio and compare different insurance providers based on other parameters, such as coverage amount, premium affordability, rider options, and customer support. This will help you identify the best option and make an informed decision.

Additionally, you can also consider platforms like PhonePe for a seamless and hassle-free insurance purchase experience.