The need for life insurance is to get financial security in case something happens to the policyholder. While buying a life insurance policy, most look at the premium they need to pay and choose an insurance policy. However, that’s where most policyholders make the mistake – the moment of truth for a life insurance company is at the time of settling a claim.
The claim settlement ratio of a company is an indicator of the number of claims they have settled over the intimations received by the insurance company. Yusuf Pachmariwala, Executive Vice President and Head of Operations, Tata AIA Life Insurance, says "The claim settlement ratio reveals the percentage of claims the insurer has paid out during a financial year. Hence, the higher the ratio, the more confidence consumers will have on the life insurer while buying a policy, as it is reflective of the company's commitment to its consumers."
The claim settlement ratio reflects the overall risk management ability of the insurer. It demonstrates how efficiently the insurer has implemented the necessary technology and process to weed out applications that are not genuine. "Pure protection policies (where there’s no savings component) are more prone to frauds and consequently have a lower settlement ratio," says an HDFC Life Spokesperson’. Hence, while comparing claim settlement ratios across insurance companies, pay attention to the experience of the insurer, the book size, product mix, and portfolio vintage.
Note that, low pending claim ratio indicates the efficiency of the life insurer, indicting how quickly it decides on the claims it received during the financial year. At the same time, while purchasing life insurance, policyholders should also look at factors other than claim settlement ratios, such as brand, financial robustness of the insurer, product suitability, governance standards, and superior customer service.
What are the things you should look at while buying a Life insurance policy?
As a policyholder, there are various criteria you should look at before opting for an insurance policy. Note that, the product chosen should also meet your financial goals. Pachmariwala, of Tata AIA Life Insurance, says "The process of buying a life insurance policy should start with an assessment of one's protection need. As a rule of thumb, one should have 10 to 15 times of annual income, depending on one's age, as their life insurance cover. Having decided on the amount of adequate life cover, one should decide on the kind of product and product features one wants."
Requirements and needs of every individual keep changing as per the changing life stages of the policyholder – such as planning to purchase a home, children’s education, retirement planning, etc. It is imperative to ensure that the insurance policy you choose adequately compensates for the income loss keeping in mind factors like future income, changing interest rates, rising costs, etc.
First-time life insurance buyer, should consider buying a Term plan. These policies offer larger financial cover at a low-value premium, especially, if bought, in the early earning phase of the policyholder’s life span. There are additional benefits and features including coverage till a very high age which some insurers offer.
From a premium paying perspective, if the choice is that of a regular paying product, policyholders should plan and space premium payments such that continuity of the policy is maintained. Lapsation of policies leads to loss of benefits and life cover for the policyholder and the beneficiaries.