Why You Should Always Check Claim Settlement Ratios Before Buying Term Insurance

When you think about financial security, likely the first thing that pops into mind is insurance. And of all the forms of insurance, term insurance is especially the inexpensive and uncomplicated means of ensuring your family’s financial security in the unlikely event something happens to you. But not all term insurance plans are equal, and among the most vital things you should never overlook is the claim settlement ratio. Understanding this ratio can be the game-changer for your family’s tomorrow. Today in this blog, we shall dispel the myths surrounding why claim settlement ratios are significant, how they are determined, and how you can use the same while choosing the right term insurance policy. Let’s begin!

What Is a Claim Settlement Ratio?

Before we talk about why the claim settlement ratio is so vital, let’s make clear what it is. The claim settlement ratio (CSR) is a percentage of insurance claims paid by an insurance firm out of the total claims it receives during a financial year. Or in simpler terms, it shows how well an insurer can deliver on its promise.

For example, if the claim settlement ratio of an insurance company is 98%, it means that they have settled 98 out of 100 claims. This is an important indicator of how reliable and efficient the insurer is.

Why Claim Settlement Ratio Is Important

Now, let us understand why this ratio is significant while buying term insurance:

1. Offers Financial Security to Your Family

The primary justification for purchasing term insurance is that you would leave your family financially stable if you were no longer with them. Consider paying a premium for several years, only to have the claim rejected when your family needs it the most. A good claim settlement ratio gives you peace of mind as you are sure the insurer will be able to settle the policy and claim.

2. Measuring the Insurer’s Credibility

A company’s CSR ratio reflects its reliability. Insurers whose CSRs are always high have a good record of fulfilling their promises. The reverse may indicate inefficiencies, long claim procedures, or inefficient customer service.

3. Enables Comparison of Insurance Companies

When you choose a term insurance plan, you will get several choices in front of you. The claim settlement ratio is a helpful metric by which you can compare companies. It’s an unbiased way to gauge their performance and narrow down your choices.

4. Minimises Stress During Troubling Times

The death of a loved one is already a stressful and trying moment for any family. They do not need one less worry at a time like this – a refused or delayed insurance claim. A high claim settlement ratio is a sign that there are good possibilities the process will run effectively and with fewer headaches.

How to Analyse the Claim Settlement Ratio

Understanding the importance of the claim settlement ratio is just the first step. Here’s what you can do to evaluate it efficiently:

1. Look for Consistency in the High CSR

One instance of a high CSR in a year is great, but many consecutive years of high CSR is a better bet. This tells you that the insurer is consistent and will not fail you in the future.

2. Check the Amount Settled on Claims

Some insurers may settle a high number of small claims but fail on large ones. Make sure you pay attention to both the number of claims and the size of the claim paid.

3. Look Beyond Numbers

The claim settlement ratio is a helpful figure, but it’s not the only figure to search for. Check the insurer’s customer feedback, the claim processing time, and the reputation of the company.

4. Understand Why Claims Get Rejected

Sometimes claims are rejected due to incomplete documents or nondisclosure of important information. Reading the causes of rejection of claims can help you avoid mistakes at the time of filing a claim.

Tips for Choosing the Best Term Insurance

Besides considering the claim settlement ratio, some other tips on how to choose the best term insurance policy are as follows:

1. Decide Your Coverage Need

Before you compare policies, establish how much premium you need. Consider your family’s lifestyle today, what you want to achieve in the future, and whether you have any loans.

2. Compare Premiums

Affordability is important, but don’t make the decision solely on the premium cost. A cheap policy with a low claim settlement ratio will not help you when you need it.

3. Read the Fine Print

Make sure you read the policy terms and conditions. Carefully read the exclusions, waiting periods, and claim processes.

4. Take an Expert’s Advice

If you are not certain which policy to choose, think about consulting a financial planner. They will help guide you in making the correct selection based on your personal needs and situation.

Real-Life Example: Why Claim Settlement Ratios Matter

Let’s take an example scenario to realise the importance of claim settlement ratios:

Rohit, a 35-year-old IT professional, chose to purchase term insurance to secure his family’s future. He purchased a policy from an insurer that had a claim settlement ratio of 70% since it gave him the lowest premium. Rohit unfortunately passed away in an accident a few years later. When his family submitted a claim, they faced several issues, and the insurer eventually rejected the claim based on ambiguous policy terms.

On the other hand, his coworker Neha took out a policy with a minimal premium hike but from an insurer with a claim settlement ratio of 98%. When her family members went through the same calamity, the claim was settled easily, and the payment was made within weeks. 

This example teaches us why it is money well invested to pay a little more for the peace of mind.

Myths About Claim Settlement Ratios

Though important, there are a few fallacies when it comes to the claim settlement ratio. Let’s bust a few myths:

Myth 1: A 100% CSR Does Not Mean No Rejected Claims

Though an insurance company would love to have a 100% claim settlement ratio, be sure the information is valid. No insurance firm can even hope to settle all claims since there may be instances of fraud or non-disclosure.

Myth 2: CSR Is the Only Factor to Consider

Although the claim settlement ratio is important, it’s not the sole factor to consider. Always think about other factors such as policy terms, customer service, and claim settlement time.

Myth 3: All High CSRs Are Equal

Not all high CSRs are equal. Seek detailed reports to learn how the ratio was attained and if it meets your expectations.

Conclusion: A Small Step for a Big Impact

Buying term insurance is the most sensible thing you can do for your family. But keeping it going requires more than choosing a low premium policy. Being aware of the claim settlement ratio means taking a step in the direction of guaranteeing that your loved ones don’t encounter financial turmoil.

Remember that the ultimate goal of term insurance is financial security and peace of mind. Don’t let a low CSR rob your loved ones of that. Take time to study, compare, and make the correct choice. Your loved ones are only worth the best.