Life insurance provides financial support to surviving dependents or other beneficiaries after the death of the policyholder. While buying a life insurance policy, it is important to map it with one’s individual profile and compare appropriate insurance policies on various parameters like benefits, company, brand reputation, price etc.
However, above all, it is essential to look at the claim settlement ratio of a company.
The claim settlement ratio shows the percentage of claims the insurance company has paid out during a financial year. The ratio is determined by dividing the total number of claims approved by the number of claims received by the insurance company.
For example, if the insurance provider received a total of 100 death claims and has settled 90 of them, then the claim settlement ratio is 90 percent.
"A higher settlement ratio is proportional to a company’s honour of commitments made at the time of purchase. It gives assurance that the promise will be kept at the time of need,” says Anil Kumar Singh, chief actuarial officer, Aditya Birla Sun Life Insurance.
Naval Goel, chief executive officer and founder of PolicyX seconds Singh's thought.
"Higher the claim settlement ratio, the more confidence will customers show in the insurance company," he added.
For checking this ratio, one can visit the website of Insurance Regulatory and Development Authority of India (IRDA) and browse through the industry data.
(Also read: Why it is the right time to buy an insurance)
"Apart from reflecting life insurer’s ability to honour claims, claim settlement ratio also portrays superior underwriting processes that the company follows," suggests Yusuf Pachmariwala, executive vice president and head operations, Tata AIA Life.
Underwriting is the process of evaluating an insurance application that includes determining applicants' risk by reviewing their medical and financial information.