One of the most significant criteria to consider when choosing an insurance company to purchase a term life insurance policy is the claim settlement ratio. The claim settlement ratio (CSR) is the percentage of total claims that an insurance company settles in a year out of the total claims received. It serves as a gauge of their trustworthiness. The higher the ratio, the more dependable the insurance provider is, in general. On the official website of the Insurance Regulatory and Development Authority of India (IRDAI), you can easily find the CSR of various organizations.
IRDA Claim Settlement Ratio
The IRDA Claim Settlement Ratio is exclusively determined for Death Claims. Claim Settlement Ratio does not include Maturity Claims. It encompasses all Life Insurance Company products, whether they are Term Plans, Endowment Plans, or ULIPs. According to annual report of IRDAI, The claim settlement ratio for FY 2019- 20 for private insurers increased to 97.18, up from 96.64 percent the previous year. The settlement ratio in the industry fell to 96.76 percent in 2020, down from 97.64 percent in 2018-19.
How Do You Calculate a Claim Settlement Ratio?
You may use the following formula to compute a CSR :
(Total number of claims settled in a year/ Total number of claims in a year) X 100 = Claim Settlement Ratio (CSR).
For example, out of the 10,000 claims filed in 2019-2020, Company A settled 9,600 of them. As a result, its CSR will be 96% (9,600/10,000*100) for that year.
What is the Significance of a Claim Settlement Ratio?
When purchasing life insurance, you must consider several factors before determining which provider is best for you. It would help if you learned about the insurance company's numerous policies and coverage options. You must understand how their clients rate their offerings and customer relationship management. However, many people overlook the importance of checking the claim settlement ratio, which is a significant mistake. The IRDA claim settlement ratio is essential for two reasons :
It Contributes to Your Family's Financial Stability
The entire purpose of purchasing life insurance is to provide financial security in the event of unanticipated situations. However, if the insurance provider refuses to honour your claim, it will defeat the goal. If the insurance respects the majority of claims, on the other hand, your family is more likely to experience a simple, straightforward, and painless claim procedure. As a result, you may rest easy, knowing that it’s unlikely that your loved ones will have to struggle to obtain the sum assured.
It's critical to check the claim settlement percentage to safeguard your family's financial security. The last thing any family wants to deal with after losing a loved one is an insurance claim denial. As a policyholder, it is your responsibility to ensure that your family does not have to go through that ordeal.
Indicates The Insurer's Trustworthiness
The best claim settlement ratio determines their capacity to pay the sum insured to you or your nominee. A life insurance policy is a major investment. To take advantage of the policy's benefits, you must pay a large number of premiums over a long period. So, if your claim is denied in the future for some reason, it could have a significant impact on your financial planning.
The claim settlement ratio is a reasonably dependable measurement indicator that may help you determine whether or not a particular insurer is trustworthy. A favourable ratio means the insurer is a good fit for you. Your provider is unlikely to renege on their compensation pledge if they have continuously maintained a high CSR over a long period.
A claim settlement ratio of over 85% is a good sign, indicating that the insurer is reliable. To find out how persistent policyholders have been renewing their policies, look at an insurer's persistence ratio. It demonstrates the policyholder's confidence in the long-term insurance goods and services available.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.