Why Should You Check Your Insurer's Claim Settlement History Before Buying Life Insurance?

A life insurance policy usually covers the risk of financial crisis that may occur in the case of premature demise of the life assured. Some plans also have a savings element and help you create a savings corpus for your financial goals. While life insurance plans might specify the benefits payable on maturity or premature demise, it is the claim that underlines the importance of the policy.

For policyholders, a successful claim settlement fosters trust in the insurance company. If the life insurance company settles the claims easily and quickly, it becomes more trustworthy.

Claim Ratio in Life Insurance

While buying a life insurance policy, you can check the below ratio to assess the insurance company’s claims settlement history.

Claim Settlement Ratio (CSR)¹

The Claim Settlement Ratio (CSR) is used to assess an insurance company’s claims-paying ability. The CSR is calculated by dividing the total number of death related claims that are settled by the insurer against the total number of claims received in a financial year. The formula is as follows –

CSR = (number of death claims paid / total number of death claims received) X 100¹

For instance, if an insurance company receives 100 claims in a financial year and settles 98 claims out of that, the CSR would be 98%.

A high CSR is favourable because it shows that the company settles higher number of claims that are made on it. You can check the CSR of life insurance companies to know their claim settlement history.

Why Check the Claim settlement History Before Choosing the Insurer?

It is preferred to check the claim settlement history of an insurance company before buying the policy. Here are some reasons why -

1. Assessment of the insurer’s claims payment capacity

The claim history of the insurance company shows how the insurance company handles its claims. A high settlement ratio is a favourable indicator, while a low claim settlement ratio can be a red flag.

So, the claim history might help you assess the insurer’s claim payment capacity when buying your life insurance policy.

2. Bolsters Trust

CSR is one of the critical parameters that not only helps you choose the company for your insurance needs but also motivate you to continue the coverage with regular premiums and maintain a long-standing and recurring relationship with the insurance company.

3. Helps in finding the suitable insurer

Lastly, the claim settlement ratios help you compare and choose the suitable insurer for your coverage needs.

Other Things to Know About Claims

Here are some other things that you should know about claims when choosing insurance companies –

• There are, usually, two types of claims in life insurance plans. One is the death claim which is paid if the life insured passes away prematurely during the policy tenure. The other is the maturity claim which is paid if the insured survives the tenure.
• You should disclose all relevant information when buying the life insurance policy. Incorrect information and hidden facts might affect your claim settlement because insurance plans are contracts of utmost good faith.
• Look for consistent claim settlement ratios which indicate a consistent claim settlement history.
• Understand the claim process of the insurer so that you can make hassle-free claims.

Reference

1. https://www.livemint.com/money/personal-finance/understanding-claim-settlement-ratio-5-points-11595907761100.html

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