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Claim settlement ratio – an important factor while buying life insurance

We all want to lead a comfortable life where money is not a difficulty. It is a fact that if one wishes to have a happy and healthy future, one needs to have financial security. To achieve a secure future, one needs to do serious financial planning – the earlier one starts with their financial planning in life, the better it is. Financial planning will not just help sail smoothly through the present but also provide a safety net for when you need it the most – including big events in life such as marriage, child’s education and your golden years, retirement. To do all of that and more, one needs to have life insurance.

So what is life insurance?

Life insurance is nothing but a legal understanding between an insurance company and the insured. When one avails a life insurance policy, it allows one to save money and provides long-term returns. If the policyholder dies during the policy term, then the sum assured from the insurance company goes to the nominee/s. Life insurance plans, like term insurance,  are like an assurance to your loved ones that their needs will be met even when you are gone. So it is essential to choose the right life insurance policy and the right insurer.

An important aspect of choosing the right insurer for your life insurance policy is the claim settlement ratio, also known as CSR.

What is the Claim Settlement Ratio?

Claim settlement ratio (CSR) provides a ratio of the number of claims that are cleared by the insurer in a period of time. CSR acts as an indicator of the amount of how many insurance claims have been settled in a financial year. It is calculated on the basis of the number of claims settled vs. the number of claims received.

It can be explained in an easy equation:

Claim settlement ratio = 100 x (No. of claims settled/No. of claims received)

To give an example,

Let’s say an insurance company receives 500 claims during a year and the insurer honours 475 claims, the claim settlement ratio for the company is at 95%. The balance 5% is known as rejected claims.

Why is Claim Settlement Ratio Important?

Claim settlement ratio is important as it offers an insight into the reliability of the insurer. The point of buying a life insurance policy is that you need financial security and you need to be assured that even when you are not around, your family will be taken care of and the claims will be honoured. There are some cases where the beneficiaries are heavily dependent on the financial assistance from the insurance claim. And if such a claim is dishonoured or unsettled, it can add on a lot of stress and burdens of the beneficiaries. Therefore, from a buyer’s perspective, looking into the insurance company’s claim settlement ratio could mean everything for their family’s future, and their financial goals and security.

One way that you can check the performance details of insurance companies in India is by reading the annual report of the claim settlement ratio published by the IRDA (Insurance Regulatory and Development Authority), published each year.

It can be difficult to estimate the individual claim settlement ratio for each insurance policy, since a CSR is calculated for all products sold by the insurance company. So check for general higher claim settlement ratios, since it indicates that the company is capable of honouring the claims made by the customers.

Before finalising on any life insurance policy for yourself and your family, it is highly recommended that you check the claim settlement ratio for insurance policies which have the lowest premiums and the highest return on investments.