Life Insurance Claim Settlement Ratio - What is it? Why does it matter?
Buying a life insurance plan may be a crucial financial decision, since the plan may be significant for financially protecting your family in case of your untimely demise. However, you may want to ensure that your family members receive the claim amount in your absence. The claim settlement ratio may play a crucial role in determining the reliability of the life insurance company from whom you purchase an insurance plan.
Read further to understand the meaning of the claim settlement ratio, its calculation, and its importance.
What is Claim Settlement Ratio?
You may often come across the claim settlement ratio of an insurance company. Claim settlement ratio is the percentage of claims that an insurance provider settles out of the total claims received in the respective year. This is usually referenced in terms of death related claims settled by the insurance company. A higher claim settlement ratio may indicate that the insurer has a better track record of settling claims. While buying a life insurance policy, the claim settlement ratio may help you narrow your choices. You may want to be sure that the life insurance company from whom you are buying a plan has a decent claim settlement ratio.
How is Claim Settlement Ratio Calculated?
Claim Settlement Ratio = Claims settled in a year/ Claims received in a year*100
For example, if an insurance company receives 1,000 claims in a year and settles 950 of them, the claim settlement ratio would be 95%. The higher the percentage, the better the potential of the insurance company in claim settlement.
What factors influence the Claim Settlement Ratio?
Several factors may influence the claim settlement ratio of an insurance company, such as the nature of the claim, the documentation submitted by the policyholder, Health related facts submitted at the time of buying policy, the claim processing time, and the insurer's financial stability, among others. Insurance companies with sound financial health may be better equipped to settle claims promptly and efficiently.
How to Select a Life Insurance Plan?
A high claim settlement ratio may indicate a better track record of settling claims. Other factors you may want to consider includes, the premium amount, the sum assured, the policy term, availability of additional riders etc. You may compare different plans from different insurance providers before making a final decision. You may want to ensure that in case you lose your life, your nominee can file for a claim and may get the claim sanctioned in a hassle-free manner. Hence, the claim settlement ratio may be one of the vital things to look for in a policy.
Does a good claim settlement ratio guarantees claim settlements?
Life insurance is a contract between the policyholder and their life insurance company. For you to be sure that your nominee receives the death claim in your absence, disclosures to Insurance Company have to be transparent, premiums need to be paid on time at your end, etc. Although a high claim settlement ratio may indicate a better track record of settling claims by the insurer, claim settlement depends on many other factors in addition to a high claim settlement ratio of the insurer.
There are several reasons why a claim may be rejected, here are some common ones:
● Policy Lapse
One of the reasons for claim rejection may be a policy lapse. A policy may lapse if the policyholder fails or forgets to pay the premium on time or if the plan's tenure has ended. It may be essential to ensure that the policy is renewed on time and that the premiums are paid regularly within due date, to avoid policy lapse.
● Incorrect or Incomplete Disclosure
Another reason for claim rejection may be incorrect or incomplete disclosure of information at the time of policy purchase. These may include providing incorrect medical information, non-disclosure of pre-existing medical conditions, or failure to disclose lifestyle habits such as smoking.
When you buy a life insurance plan, the claim settlement ratio may be a critical parameter to consider. You may also want to be aware of the reasons why insurance claims might get rejected. Doing so may ensure that your family may get the claims settled quickly in your absence.
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