Claim Settlement Ratio vs Premium: What Should You Prioritise When Choosing Term Insurance?

Choosing the best term insurance plan leaves most people baffled. The dilemma remains the same: should they go for the cheapest policy or the one with the highest claim settlement ratio (CSR)?

Since the purpose of a term insurance plan is to provide financial support to one’s dependents in case of an unfortunate incident, the choice between the two options mentioned above is not an easy one. To make the most sensible choice, consider both factors in detail while purchasing the term insurance plan.

Understanding the Basics

Now that you understand the importance of both factors, take a look at some basic definitions:

• Premium: This refers to the amount that one pays to the insurance company for coverage.
• Claim Settlement Ratio: This percentage indicates how many of the total number of claims made by the policyholders have been settled by an insurance company against the number of claims not settled. So, for instance, if 100 claims were made and 98 of them had been settled, the claim settlement ratio would be 98%.

What is the claim settlement ratio (CSR)?

The CSR indicates the number of the insurance company’s claims that have been settled against the number of claims not settled. It is a reflection of the insurer’s credibility. A high CSR means an insurer has a good track record of settling claims.

The Insurance Regulatory and Development Authority of India (IRDAI) releases the list of CSRs of all life insurance companies in the country.

Why settle for a claim settlement ratio?

Your family’s financial security and peace of mind matter a lot. Therefore, choosing a reputable insurance company can help prevent any future headaches.

So, what should you look for when considering the claim settlement ratio? As a rule of thumb, go for an insurance company that has a CSR of 95% or above for the past three to five years. Additionally, make sure that the company has a history of quick claim settlement.

What is a premium?

Your premium is the amount of money you pay the insurance company for coverage. Term insurance policies are popular because they provide extensive coverage, such as up to ₹1 crore, with low premium rates.

Why is premium important?

Your insurance plan is for a long term, typically spanning 20 years to 30 years, so it is essential to choose an affordable plan. Besides, you also have to think about the money left over after paying your premium. A lower premium could indicate a good value plan. However, do not get tempted by the cheapest plan out there. Remember, a plan with the lowest premium can turn out to be risky if the insurance company fails to provide claim settlement when needed.

Steps to Choose the Best Plan

Now that you know the significance of both factors, take a look at some essential steps to choose the best plan.

Step 1: Screen insurance companies by claim settlement ratio (CSR)

Choose insurance companies with higher CSR to shortlist credible insurers.

Step 2: Ensure the amount settlement ratio is high

Sometimes, an insurer might have a high rejection ratio even if they have a high settlement ratio. A company can settle numerous small-amount claims while rejecting a large number of claims. So, make sure that you look at the ratio of the amount of money settled and claimed. Go for a ratio higher than 90%-95%.

Step 3: Compare the premium

After considering the two crucial factors mentioned above and creating a shortlist of 3-4 companies, compare the premium and choose the one that provides the best deal.

How to figure out your desired level of coverage and premium

You will have to do a little calculation to determine your coverage needs before deciding on the premium. In India, it is recommended that people go for a coverage amount that is 10-15 times their annual income.

The calculation is simple with an online term insurance calculator. Here is how you can use it.

• Enter your age, annual income, and other relevant details to find the approximate premium you would have to pay.
• You can also compare quotes from reliable insurance companies.
• Additionally, you can go for a policy with a longer term to reduce your monthly premium that fits your budget.

Essential tips to ensure that your claim isn’t rejected

Even if you have chosen an insurer with the best claim settlement ratio, there is always a possibility that your claim can get rejected due to various reasons. However, you can avoid such situations by following certain guidelines, including:

• Be completely honest: It is essential to be entirely honest while filling out an insurance application. You must provide accurate information about pre-existing diseases or old surgery, if any. Moreover, you should also refrain from giving false information about one’s lifestyle or alcohol consumption, as such an act can lead to a claim rejection.
• Fill out the application form yourself: While many people tend to rely on agents to fill out the insurance forms on their behalf, it is always better to do it yourself to avoid any errors.
• Update nominee details: Update nominee details with the insurance company to ensure that the claim amount gets transferred directly to the nominee’s bank account after an unfortunate incident.

Conclusion

When purchasing an insurance plan, always keep in mind that the claim settlement ratio is of utmost importance. The ratio indicates an insurance company’s credibility. Remember that the premium will decide how much you want to pay for an insurance plan while the claim settlement ratio will decide how easy the process of claiming will be.

Firstly, you should focus on eliminating companies with a poor track record of claim settlement. Then, you can use an online term insurance calculator to compare the rates of these shortlisted companies and purchase an insurance plan that fits within your budget.