Understanding Claim Paid Ratio: 3 Things to Consider

November 3, 2020

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Life is unpredictable, and the unforeseen circumstances can often have grave consequences on your financial health as well as that of your family. That is the reason it is crucial to invest in a life insurance plan to secure your financial future. In case of your unfortunate demise, the life insurance policies will provide your loved ones the much-needed financial backup to help them live their life comfortably, should something happen to you.

However, not all life insurance policies are the same. Some offer greater flexibility and benefits than others. With several life insurance products in the market, it can be difficult for a policy seeker to choose the best one that meets his/her needs.

It is where the Claim Settlement Ratio or CSR comes into play. It is a ratio that is derived by dividing the number of claims paid against the number of claims filed.

While looking for a life insurance plan, you must always entrust in an insurance provider who has a high claim paid ratio. It is this objective numerical figure that can help you make the final decision in choosing the right investment policy and which insurer you should opt for.

Insurance Regulatory and Development Authority (IRDAI) releases a report every year that has the claim settlement ratio of different insurers. You should check this data before choosing the insurance provider.

Think of it this way – what is the point of investing your life’s savings in a policy that denies benefit to your family members when the time comes? It is the reason you must ensure that the insurance provider has a reasonable payout ratio for claims.

Here, we will discuss the need to consider The claim paid ratio when buying a life insurance policy and how it helps you in making an informed decision.

Why should you Consider Claim Paid Ratio?

The claim settlement ratio indicates how often the insurance company has held its end of the bargain by paying the insurance benefit to the intended recipient.

For example, an insurance company receives 100 death claims in a financial year and pays out 98 of them within that year. Therefore, the claim paid ratio would be 98%. It implies that the insurer has an efficient claim settlement process that allows them to maintain a higher claim settlement ratio.

Before we delve deeper into the claim settlement ratio, it is crucial to understand why insurance companies maintain a robust and streamlined process. The primary purpose of buying life cover is to provide your family with the necessary financial support in case of your untimely passing.

When you invest in an insurance plan from an insurer with a high settlement ratio, you can rest assured that the entire process of claim filing to getting the final disbursement will be convenient and simple. Most importantly, your loved ones can rest assured that the life insurance benefit will be disbursed quickly.

As a rule of thumb, check this ratio before purchasing a plan from them.

Consistency of Claim Settlement Ratio

It is not just the ratio itself, which is important. An accurate measure of the insurance provider’s efficiency is visible through the consistency of the claim paid ratio.

When comparing insurance companies, you should check their claim settlement ratio in the past five years. This number should be consistently in the high 90s to be trusted with your life’s savings. If you are looking for a reliable and trustworthy insurer, then aim for a company that has a smaller range of claim settlement ratios, such as above 95%.

Needless to say, the higher the claim settlement ratio, the more confidence you will have on the insurer. Also, you will be assured that the company is capable of managing high-risk investments and that they have a robust process to identify faulty claim applications.

Process of Claim Settlement

When you choose a life insurance provider, don’t forget to check their claims process. It should ideally be short, simple, and hassle-free. Here are some steps you should look out for:

Hassle-free reporting: When you file for a claim, you should be able to do it online, via email, or their central office.
Quick processing: The process of claim should be fast for the bereaved family member or the policyholder. Check their average turnaround time for claim settlement before choosing the insurer.
Settlement: Once all the documents are assessed and approved, the settlement should take place as quickly as possible from the date of intimation.
Steps to Avoid Claim Rejection

As a policyholder, you can take the following steps to avoid the hassle of claim rejection.

Make full disclosure of your details. If you forget to mention your particular lifestyle habits such as smoking or drinking, and it is revealed at the time of your claim processing, the disbursal can be rejected.
It is always advisable to fill out the insurance application form yourself and to the best of your knowledge. A third person may not know your personal information and miss out on pertinent details that can interfere with the claims processing later.
Use the free look period to examine all the terms and conditions as well as policy documentation to ensure that everything’s in place as per your expectations. In case you feel the clauses in the policy are not acceptable, then you can return it to the insurer for a full refund.
After investing in a policy, notify the nominee of the same. If the nominee has to raise a claim under the policy, they should be aware of it and know how to go about the filing process. If the claim filing is done the right way, then the claim settlement process is also quicker.

The claim settlement ratio of an insurer provides an insight into their credibility. Once you have checked the policy benefits and requirements, be sure to check the settlement ratio of the insurer before making the purchase decision.