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How Term Insurance Claim Settlement Ratio Matters

Term insurance claim settlement ratio

How Term Insurance Claim Settlement Ratio Matters


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July 10, 2020

By : Bajaj Allianz Life

Term insurance is one of the essential financial product that helps secure the future of your dependent family members. It ensures that your beneficiaries have a financial safety net to fall back on in case something untoward happens to you later in life. When you buy term insurance, you are effectively safeguarding the future of your loved ones. In the process, you also get to enjoy tax benefits under section 80C and section 10(10D) of the Income Tax Act, 1961, subject to provisions stated therein.

If you are keen on getting to know more about this kind of life cover, let us begin at the basics.

 

What is term insurance?

 

Term insurance is a purely protective life cover that provides life protection to the policyholder. It is an important financial planning tool that ensures your family’s life goals are achievable even in your absence. This is because under a term insurance policy, the insurer offers a lump sum payment to your nominee or beneficiary if you are no more. This financial pay-out can help your family members achieve life goals such as paying for the higher education of your kids or getting your children married.

In return for the life cover obtained when you buy term insurance, you will be required to pay a premium to the insurer at periodic intervals. These premiums can be paid as a lump sum amount when you buy term insurance, or they can be paid periodically on a monthly, quarterly, semi-annual, or annual basis, depending on the kind of plan you choose.

You can make use of a term insurance calculator to figure out the amount of sum assured needed for your family to get through the loss of their primary or only source of income. A term insurance calculator is easy to use, and you can access it free of charge online. Before you purchase a term plan from an insurer, it is advisable to look at their claim settlement ratio.

 

What is the claim settlement ratio of a life insurance company?

 

In order to receive the money due to them in case of an exigency, your beneficiaries will need to raise a claim with the insurance company from whom you have purchased the term plan. The insurer then settles this claim by looking into the details of the claim application made by your beneficiaries and then paying out the sum assured in case the claim is genuine and policy is in force.

This process forms the basis of the claim settlement ratio of an insurer. Simply put, the term insurance claim settlement ratio is the total number of claims approved by insurance company divided by the total number of claims received by them. This is an important factor you need to look into before you buy term insurance from an insurance provider.

 

What does it mean for your term insurance purchase?

 

The term insurance claim settlement ratio of an insurer is one of the many factors that need to be weighed in before making a purchase. What this factor means for your term insurance purchase is that it ultimately decides how easy it will be for your beneficiaries to receive the claim amount when you are no more.

An insurer with a higher term insurance claim settlement ratio is evidently the better choice to purchase your term plan from, since the likelihood of them paying out the sum assured to your family is higher. In other words, it is always a good idea to buy term insurance from an insurer with a high term insurance claim settlement ratio.

Having said that, at times your term insurance claim could be rejected too.

 

Common reasons why term insurance claims might get rejected

 

It is highly unlikely that an insurer will have a 100% claim settlement ratio. This is because there are many reasons why a term insurance claim might be rejected. Here is a closer look at some of these reasons.

1. Policy lapse

If you have failed to pay your premiums on time, your policy could lapse, rendering it ineffective. Most term plans allow for a grace period in case you have forgotten to pay the premium due, and if you fail to make the payment within that period, the policy lapses. A claim made on a lapsed policy will be denied.

How to avoid this?

The simplest way to avoid this is to pay your premiums on time. This ensures that your family will have a smoother claim settlement process.

2. Incorrect or incomplete disclosure

As per Section 45 of the Insurance Act, 1948, Life insurance Policy can be called in question within three (3) years on the ground that any statement of or suppression of a fact material to expectancy of life of the Life Assured or Policyholder was incorrectly made in the Proposal Form or other documents, basis which Policy was issued or revived or Rider issued. Accordingly, if you fail to provide accurate information in the proposal form, or provide incorrect information, hide certain important personal details, or give incomplete disclosure of facts, it can render claim on the policy to become unenforceable.

How to avoid this?

Ensure that you provide all the required material details completely and accurately upfront, and in case of any doubts, get them resolved right away, so your insurance application is complete and there is no material non-disclosure. In addition, you can make sure to read the policy document thoroughly and get to know the details of the contestability period and the kinds of exigencies covered by your plan.

 

Conclusion

 

The claim settlement process is crucial to get your family through tough times. It is also important to have all the necessary documents in order, so your beneficiaries do not face any hassles when raising a claim with the insurer. Ultimately, the claim settlement ratio is an important factor to consider when you buy term insurance.

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