Claims Settlement Ratio In A Life Insurance Policy

One of the biggest concerns surrounding an insurance policy purchase is around the settlement of claims by insurance providers. The “claims paid ratio” is a reliable measure mandated by the insurance regulator in public disclosures in India. This ratio helps determine if the life insurer and the insurance policy are the right choices for you or not.
Here’s what a life insurance claims paid ratio is, how it is calculated, and its effect on your life insurance policy.
Simply put, a “claims settlement ratio” or “claims paid ratio” is a calculation metric that helps understand the number of claims paid against the number of claims received by the insurer. This ratio helps assess the insurer’s commitment to delivering insurance claims settlement. A higher ratio helps understand the claims paid efficiency of the insurer and gives a comfort to the family of greater chances of claim being settled by the company after the insured person’s unfortunate demise.
“Claims paid ratio” is calculated by dividing the total number of insurance claims paid by the total number of insurance claims received by the insurance company. For example, if a life insurance company receives 1,000 claims in a year, out of which it pays 992 and either rejects or doesn’t make a decision (for example: investigations underway) on the remaining claims, then the claim paid ratio for the insurance company would be (992/1000)% or 99.2% in a financial year.
It is important to remember that the ratio is measured for the entire product portfolio of the company including term plans, ULIPs and endowments, among others.
The “claims paid ratio” reflects the pattern of resolution of claims by a life insurer. A high ratio indicates that the underwriting and claims process is robust, compared to one that has a low “claim paid ratio.”
The primary purpose of a life insurance plan is to provide financial support to families in the face of the untimely demise of a breadwinner. When purchasing an insurance policy from an insurer with a high claim paid ratio, there is comfort that when the need arises, the process of making a claim will likely be smooth, convenient, and transparent.
In the case of the insured event (either critical illness or death) occurring when the policy is in force, your loved ones are expected to receive a hassle-free disbursal of the life insurance benefit.
A company with a higher ratio is considered more reliable than a company with a lower “claims paid ratio.” If we look at comparative data, a paid ratio of more than 98% can be considered good. One-third of India’s life insurers have a paid ratio of more than 98% while the top three life insurers have a paid ratio of more than 99%.
The claim settlement process in a life insurance company comprises three steps:
An insurer’s claim settlement procedure must be simple and approachable. Typically, you should be able to report the death claim online or through a helpline number, email or at any branch or central office of the insurer.
The faster the average turnaround time for evaluation, the better. All claims raised are examined and settled based on the information present in documents submitted in connection to the same. Thus, it is advisable to provide complete information for faster and smoother claims processing.
A life insurance company makes a call on the final settlement after due assessment and approval of the relevant documents that are submitted. As per law, all valid claims must generally be settled within 30 days by the insurer upon receiving all requisite documents and clarifications.
In case circumstances require further investigation, it may take up to 120 days to settle the claim. Insurance claimants must remember when an insurance company assigns a dedicated “claims relationship officer” to guide the claimant at different steps of the claims process, their services must be availed to make the whole process easier and faster.
An insurance policy filled in with explicit details has a low risk of getting rejected. However, an insurance company can deny claim settlement under the following circumstances.
Do not mislead the agent or the company with incorrect or incomplete information on important details such as previous policies (issued/applied/rejected) and claims, if any, information on age, income and lifestyle (smoking/drinking) among others.
There is no harm in disclosing the details of your existing life insurance policies to your insurance company. Besides being detrimental to the claims settlement, mis-statement of any personal information can be deemed fraudulent and may lead to termination of policy benefits.
The most common reason for claims rejection is the non-disclosure of facts of an individual’s health. Factors like withholding information on existing critical medical conditions, surgeries and operations, among others. These factors, if revealed at the time of the settlement, can lead to rejections of life insurance claims. Hence, it is best to disclose these at the time of buying the policy as it also influences the premium you pay.
If you do not update the nominee’s details, then the settlement process could take extra time. In this case, the insurer may ask for additional documents to establish legal evidence of title including succession or legal heir certificate. In case the nominee is a minor, then details of their guardian should be on the policy record, as well.
A claim is settled for full benefits only for active insurance policies. Regular payment of premiums on the policy helps avoid lapses. A 15-day grace period is offered for monthly premium mode policies and 30-day for all other premium payment frequencies.
Some policy contracts also have an option to convert a lapsed policy into a reduced paid-up policy, where the sum insured is proportionately reduced to the amount of the premiums paid as compared to the premiums payable for the entire policy duration. To avoid any lapses due to time constraints, do set up a direct auto-debit facility linked to your bank account to pay the premium for renewals.
However, if you still lag on premium payments, then check with the insurance company on how to reinstate your policy. This may require paying the prescribed late fees or interest along with submitting fresh health declarations to reinstate the policy benefits.
For a speedy claim settlement process, a claimant needs to ensure the following:
As a rule of thumb, one must always consider the ease of claims process and the “claims paid ratio” of a life insurance company before buying a policy — the higher the ratio, the greater the chances of your future claim being settled by the company.
The Insurance Regulatory & Development Authority of India (IRDAI) publishes a ratio of all the insurance companies in India every year, the information of which is available on the website. Check this data before deciding on the insurer, but do not make this the only parameter while buying a life insurance policy.
As a discerning buyer, you should ask the insurance company to provide all information about their claims process and “claims paid ratio.” During the policy term, if the insurance company fails to pay the claim, the whole purpose of buying the insurance policy gets negated.
Similarly, being transparent about your medical history, habits such as smoking, income and education details will go a long way to ensure speedy claims settlement. This will ensure that your family does not face any problems while filing a claim to the insurer in your absence.
Vishy Viswanand is the Deputy Managing Director at Max Life Insurance. He has nearly three decades of experience in financial services. Prior to joining Max Life Insurance, Viswanand was a retail banker with ANZ Grindlays Bank for nearly a decade. He holds a Master’s degree in Management Studies from BITS, Pilani.
Aashika is the India Editor for Forbes Advisor. Her 13-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur.


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