Ensuring the credibility of an insurance company is imperative before you purchase a life insurance plan. The critical metric that speaks of the insurance company’s reliability is the claim settlement/paid ratio. A high ratio means the insurer is trustworthy, and a timely claim settlement is sure to come through. The emphasis on this ratio underscores the importance of choosing a life insurance company renowned for providing financial security.
What Does Claim Settlement Ratio Mean?
The claim settlement ratio represents the relationship between the number of filed claims and the number of claims that an insurance company successfully settles. This ratio is the yardstick for assessing an insurer’s reliability. After all, what’s the point of investing in life insurance if a timely settlement isn’t provided?
The Insurance Regulatory and Development Authority (IRDA) releases annual data on the claim insurance ratio of all public as well as private life insurance companies. It is essential to check this data before you go for a life insurance plan. A higher ratio signifies a more reliable insurer. Consistency in the claim settlement ratio over at least five years further substantiates the insurer’s trustworthiness.
The claim settlement ratio indicates the number of death claims settled by the insurance company. It is calculated by dividing the total number of claims settled in a financial year by the total number of claims reported in that year and multiplying it by 100%.
Suppose an insurer receives 100,000 claims during a financial year. Among these, they approved 90,000 claims and declined 10,000 claims. To calculate their claim settlement ratio, you can use this formula:
Claim settlement ratio = (Number of settled claims / Total claims received) × 100
Claim settlement ratio= (90,000/100,000) % = (0.9X100) % = 90%
Why is Claim Settlement Ratio Important?
When considering life insurance, it’s essential to understand what life insurance is and how the claim settlement ratio plays a vital role. A life insurance policy is a way of providing financial security for loved ones in the event of the death of the policyholder. The fulfillment of this purpose depends on the integrity of the insurance company, with the claim settlement ratio serving as the yardstick. A low ratio implies claims being rejected without valid reasons, defeating the very purpose of insurance.
As online insurance policies become increasingly popular, and with the convenience of online platforms offering price comparisons, it’s easy to be enticed by lower prices. But imagine the consequences if the claim is rejected or the settlement is delayed. This situation can be especially challenging for beneficiaries who may find themselves in financial crises due to delayed claim settlements. In brief, the claim settlement ratio safeguards the true purpose of life insurance and provides unwavering support to those left behind.
What are the factors that affect the claim settlement ratio?
Several factors affect the claim-paid ratio. They are:
Types of policies
The nature of the policy has a great influence on the claim paid ratio. For instance, term life insurance policies tend to have a higher settlement ratio compared to other complex plans with intricate terms and conditions.
Documentation involved
Efficient settlement procedures with simple documentation lead to quicker processing and a higher ratio. Conversely, complex documentation can result in unnecessary delays, ultimately lowering the claim settlement ratio.
Government Regulations on Claim Settlement
The government has established specific regulations requiring insurance companies to maintain a minimum claim settlement ratio. These regulations are primarily aimed at protecting the interests of policyholders and upholding the integrity of the insurance industry.
What is the role of Insurance Education?
Understanding the claim settlement ratio empowers individuals to make an informed decision when purchasing a term insurance plan. Educated consumers are more likely to buy the right insurance policy and make the best choices for the financial security of themselves and their family members.
What Are the Steps To Ensure A Smooth Claim?
The following points have to be kept in mind to ensure a smooth claim:
- Provide the right information while applying for an insurance policy.
- Keep the policy in force and inform the beneficiaries about the policy.
- Conduct thorough research and be wary of insurance companies with a low settlement ratio.
- Get valuable insights on what to expect and how to navigate the claim process effectively through case studies.
- Familiarise yourself with the policy document to understand the claim filing process.
- Any change in the contact address, contact number, etc., should be updated in the policy from time to time.
- In the unfortunate event of the policyholder’s passing, promptly inform the insurance company.
- Organise all the documents required for the claim approval.
Conclusion
The claim paid ratio is more than just numbers; it is a measure of how reliable an insurance company is. Emphasizing this ratio helps you make informed decisions when selecting an insurance policy. It serves as a guide for choosing insurers who are trustworthy and dependable. The ratio ensures that the promise of financial security in life insurance remains steadfast and dependable.
In essence, the claim settlement ratio helps you choose the right insurers who will fulfill their commitments when it truly matters, especially, during times of need.
