What is claim settlement ratio in term insurance?

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Claim settlement (Image: Pexels.com)
Claim settlement (Image: Pexels.com)

New Delhi : The primary purpose of a term life insurance policy is to offer financial cover to the policyholder’s loved ones in their time of need. When you buy a term plan, you are ensuring that your nominees will stay comfortable during your absence, as the insurer will pay them the sum assured. 

It is essential to find the best term policy to ensure that your family gets the benefits they deserve. You can use a term insurance calculator to compare different plans and determine the most suitable one as per your needs. However, the calculator will not show you a crucial indication, which is the Claim Settlement Ratio (CSR). Read on to learn more about it.

What is CSR?

CSR is the percentage of policy claims that an insurance company has settled in a given year in comparison to the total number of claims received by them during the same period. This number indicates the possibility of an insurer settling the claim if your nominees ever have to make one. The Insurance Regulatory and Development Authority of India (IRDAI) reveals the CSR of different insurance companies each year. Every Indian insurer has specific standards that the term policy claim has to meet before they can approve it.

For example, imagine an insurance company received 1,000 term policy claims last year, and they settled 900 of them. It means, their CSR is 90%, as the insurer settled 90% of the claims. There can be many reasons behind the rejection of the remaining 100 claims. The 90% ratio is considered a high CSR. An insurance company with a higher number is more trustworthy. When you pay the term insurance premium to a company with a high CSR, you can live stress-free, as your loved ones will not face any difficulties after they file a claim.

Apart from the percentage of settlements accepted, the CSR also indicates the efficiency of a particular insurance company. When you find an insurer with a high CSR, be assured that they have the necessary technology to determine which claims are genuine. This way, you will know if the insurance company is dependable.

Formula to calculate the CSR 

Below is the formula for calculating the CSR:

(Number of settled claims/Number of received claims) x 100

Do note that the IRDAI only releases the percentage of claims settled, and not the total number of claims received by an insurer. 

Why is CSR important?

Term insurance plans in India offer significant benefits. When you buy such a policy, it ensures that the financial future of your family is safe. However, what if the insurer rejects their claim for some reason? Imagine the struggle that your nominees will have to go through if something like that happens. Apart from having monetary problems, they will have to cope with emotional distress as well. This is why you need to know about an insurance company’s CSR. A high CSR indicates that the insurance company will take care of your loved ones during a tragic phase. 

Why are some claims rejected?

You might be wondering why paying the term insurance premium timely is not enough to ensure claim settlement. The truth is, many people accidentally or deliberately provide false information to their insurers. Sometimes, they may hide information that can affect the sum assured or result in higher premiums. If an insurance company becomes aware of such cases, they immediately deny the claim. 

There are instances when the policyholders fail to pay the premium on time, resulting in policy lapse. If the nominees make a claim unaware of the situation, the insurer rejects it. This is why you must be careful about these aspects, ensuring that your insurer has no legitimate reason to reject the claim. 

Thus, a term insurance calculator is not enough to determine the reliability of an insurer. You need to find out their CSR as well before buying a policy from them.