Understanding Claim Settlement Ratio in Term Insurance

Buying term insurance is one of the most important investment decisions you'll make. It offers peace of mind and secures the financial future of your loved ones in the unfortunate event of your death.

While there are multiple insurance providers to choose from, what differentiates the best term insurance from an average one is the insurer's ability to honour the claim promptly. The claim settlement ratio helps you assess this.

In this blog, we'll explain what claim settlement ratio means and everything you need to know to make an informed decision when selecting a term insurance provider.

What is the claim settlement ratio in term insurance?

Claim settlement ratio (CSR) is the percentage of claims an insurer settles out of the total claims received during a period. It helps you measure their ability to settle claims successfully.

The claim settlement ratio is one of the most critical factors to consider before buying a term insurance policy. As a rule of thumb,  higher the ratio, the better, as it indicates that the insurance provider has a positive track record of settling claims quickly and efficiently. It assures policyholders that their loved ones will receive the insurance money without any hassle or delays.

How is the claim settlement ratio calculated?

You can calculate the claim settlement ratio by dividing the total claims settled by the insurer by the total claims received in a specific period.

Therefore, CSR= (Total claims settled in the year / Total claim requests received in a year) x 100

Let's understand this with an example.

Suppose insurer A received 10,000 claim requests in a year. Out of these, they settled 9,700 requests successfully.

Now, the claim settlement ratio of insurer A will be:

(9,700 / 10,000) x 100 = 97%

This means the insurance company has successfully settled 97% of claims during a particular year.

What is a good claim settlement ratio?

Typically, a high claim settlement ratio of 90% or above is considered favourable as it indicates that the insurer has successfully settled a large percentage of claims. Some insurance companies have a claim settlement ratio of over 95%, making them preferable.

Why is the claim settlement ratio important?

Checking the claim settlement ratio is extremely important when buying term insurance. Here's why:

#1 Indicates the insurer's reliability

The claim settlement ratio represents the insurance company's reliability and trustworthiness. A higher ratio indicates a good track record of the insurer in honouring the claims promptly. As a result, they are less likely to reject a valid claim.

#2 Ensures financial security

Term insurance assures the financial security of your loved ones in the event of your death. Buying the policy from an insurer with a high claim settlement ratio ensures your family will receive the sum assured without any disputes or delays. Moreover, it gives you peace of mind that your premiums will not go to waste.

#3 Transparency and accountability

The Insurance Regulatory and Development Authority of India (IRDAI) has mandated all insurance companies to disclose their claim settlement ratios. This ensures transparency in the market, enabling policyholders to evaluate and compare the claim settlement performance of different providers to make an informed decision. By selecting an insurance provider with a consistently high claim settlement ratio, you can increase the chances of your family receiving the insurance money without any complications.

Where can you check the claim settlement ratio of different insurance providers?

You can check the CSR of any provider online in two ways:

-Through IRDAI's website

-Through the insurance provider's website

IRDAI releases the claim settlement ratios of different insurance providers every year. You can check their annual report for CSR details. Alternatively, you can visit the insurance provider's official website to check their claim settlement ratio.

Make smart insurance decisions to secure the future of your loved ones

Term insurance helps your loved ones maintain financial stability in your absence. However, buying it from a reliable provider is important to ensure your family can receive the insurance payout without any hassle. This is why you must understand and consider the claim settlement ratio when selecting an insurance provider.

You can easily compare term insurance offered by different companies with Tata Capital Wealth. Our experts help you evaluate different parameters and choose the best option for your requirements.