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Claims Ratio – Should you always rely on it?

claims-ratio-india-2014-bad-indicator
  • Author

    MintWise

  • Date

    May 10, 2014

claims-ratio-india-2014-bad-indicatorMost of us check out claims ratio of insurance companies in India when we want to buy term insurance. Not a bad thing. But it this indicator really reliable for buying a term insurance plan? Let’s find out.

Claims Ratio is declared by the regulator IRDA at an aggregate level, i.e. as a total ratio of all kinds of policies put together for a particular company.

So for a company X, the claims ratio is calculated as…

  • the total no. of death claims paid for its endowment policies, money-back policies, whole-life policies, children’s policies and term insurance policies

divided by

  • the total no. of death claims received for all these types of policies.

Now please understand that except term insurance, all other type of life insurance are mainly savings products with some insurance built in. The death claim values are small in nature for savings plans and there are hardly any frauds because if someone indeed wanted to fraud the insurance company (which is a big reason for claims rejection), they would buy term insurance because it gives high life insurance cover with very low premium. So the death claims ratio of savings plan customers is generally very high for all companies alike.

Look at the table below. If company X has high sales of savings products, they will have high no. of death claims from customers of savings products. Then its overall claims ratio will be very high even if it rejects most of its term insurance death claims. On the other hand, if a company sells mainly term products and lesser saving products, the overall claims ratio will depend on its term insurance death claims approvals.

So the total claims ratio will swing in the direction of the whichever product the company sells more of. This is explained below.

Term Insurance Claims Settlement Ratio

 

Term Insurance of   1 Crore with 55% Savings
based on best Claim Settlement Ratios @ just Rs. 5,728 / year*
DATE OF BIRTH
SMOKING / TOBACCO
Yes No
GENDER
Male Female
NAME*
EMAIL*
MOBILE*
* for a healthy 25-yr old Non-smoker Male for 25 years.

 

For company X, the total claims ratio is 97% and that looks really good. But when you go deeper into the number, you will realize that the claims approval for Term Insurance alone is just 40%. The company sells a lot of savings plans and so has lot of death claims in those products. Since most savings plans death claims are passed, the overall claims ratio looks very high.

Now look at Company Y. The total claims ratio is just 71%. But the claims ratio for term insurance alone is 63%, much higher than company X!

Now tell me which company will you choose when you are buying term insurance – X or Y?

I would choose Y, and I am sure you would as well. But we have a problem. The break-up of claims ratio between savings products and term products is not available anywhere! Till then all we can do is use the overall death claims ratio, which need not necessarily be a good indicator when deciding on our a term insurance plan, like you saw in the example above.

Given the rapidly increasing no. of Indians buying online term insurance, it is just a matter of time when our insurance regulator IRDA will start publishing product-wise claims details.

All this however should not stop you from buying a term insurance plan. There is no doubt that if you are a bread-winner and have at least one dependent, it is the best product that you can ever buy! But do your research well. Don’t just look at price and claims ratio, compare term insurance plans of all companies in India based on these 5 parameters.

[term_ins_hook_cta2]

Related Posts

  • Online Insurance – 5 Myths About Buying in India
  • Online Term Insurance Plan in India – Compare and Buy
  • Term-Life-Insurance-Medical-Test-Application-Form
    Term Life Insurance – Read This Before you Apply for it

23 thoughts on “Claims Ratio – Should you always rely on it?”

  1. MintWise says:
    October 24, 2015 at 9:48 PM

    Thanks for the appreciation, Rakesh.

  2. rakesh bharucha says:
    October 24, 2015 at 9:48 PM

    Awesome insight!!! Great articles! Great website.

  3. Capt. S Sharma says:
    September 1, 2015 at 1:12 PM

    Oh my God! Is this really true? this should be known to all term insurance buyers!

  4. Sukhi says:
    September 23, 2014 at 8:48 AM

    Great article. All term insurance articles are well researched! great website for knowing about insurance.

  5. Sukhi says:
    September 23, 2014 at 8:48 AM

    Great article. All term insurance articles are well researched! great website for knowing about insurance.

  6. Platine Fernandes says:
    July 26, 2014 at 3:37 PM

    Wonderful Explanation.. Thanks So Much

  7. Platine Fernandes says:
    July 26, 2014 at 3:37 PM

    Wonderful Explanation.. Thanks So Much

  8. MintWise says:
    July 12, 2014 at 2:09 PM

    Thanks for your kind words, Yashwant. We will research and put more of our thoughts on Health Insurance shortly.

  9. MintWise says:
    July 12, 2014 at 2:09 PM

    Thanks for your kind words, Yashwant. We will research and put more of our thoughts on Health Insurance shortly.

  10. Yashwant Deol says:
    July 12, 2014 at 2:08 PM

    I never thought this way. it is very well explained here. i have not seen such articles in any other website in India. please keep writing and educating others. also please write more articles on health insurance since that is also not clearly explained in any website.

  11. Yashwant Deol says:
    July 12, 2014 at 2:08 PM

    I never thought this way. it is very well explained here. i have not seen such articles in any other website in India. please keep writing and educating others. also please write more articles on health insurance since that is also not clearly explained in any website.

  12. MintWise says:
    July 6, 2014 at 11:32 AM

    We will have to wait till IRDA starts publishing it. However, Janardhan, don’t stop buying a term insurance policy for that reason.

  13. MintWise says:
    July 6, 2014 at 11:32 AM

    We will have to wait till IRDA starts publishing it. However, Janardhan, don’t stop buying a term insurance policy for that reason.

  14. Janardhan says:
    July 6, 2014 at 11:29 AM

    Very very good point, MintWise. How can we get this information of term insurance claims ratio separately?

  15. Janardhan says:
    July 6, 2014 at 11:29 AM

    Very very good point, MintWise. How can we get this information of term insurance claims ratio separately?

  16. MintWise says:
    May 31, 2014 at 11:45 PM

    Rishi, both companies are great. We do not recommend any specific companies on this website, only give you all the options, information, basis and direction that fit your requirements – so the final call will always be yours.

    Also, we feel you are thinking of splitting because you are a little confusd and unsure of claim settlement. Splitting will make the overall proposition more expensive. Check the link below. Split only for reasons mentioned therein, not otherwise. Weigh the options and just go ahead with a company that offers best value in your mind, you can rest assured it will work out as good as if you had chosen the other.

    http://www.mintwise.com/term-insurance-plan-split/

  17. MintWise says:
    May 31, 2014 at 11:45 PM

    Rishi, both companies are great. We do not recommend any specific companies on this website, only give you all the options, information, basis and direction that fit your requirements – so the final call will always be yours.

    Also, we feel you are thinking of splitting because you are a little confused. Splitting will make the overall proposition more expensive. Check the link below. Split only for reasons mentioned therein, not otherwise. Weight the options and just go ahead with a company that offers best value in your mind, you can rest assured it will work out as good as if you had chosen the other.

    http://www.mintwise.com/term-insurance-plan-split/

  18. Rishi says:
    May 31, 2014 at 6:06 PM

    Hi Team, I am planning to get a term insurance of 1cr… Based on some very insightful articles on your website, I have decided to go either with LIC or SBI Life (considering 74% SBI stake 26% CNBP Cardiff). Can you please guide me on which one should I finalize considering Premium 12k SBI & 24k LIC. OR Should I do an equal split with both players ??

  19. Rishi says:
    May 31, 2014 at 6:06 PM

    Hi Team, I am planning to get a term insurance of 1cr… Based on some very insightful articles on your website, I have decided to go either with LIC or SBI Life (considering 74% SBI stake 26% CNBP Cardiff). Can you please guide me on which one should I finalize considering Premium 12k SBI & 24k LIC. OR Should I do an equal split with both players ??

  20. Vinod says:
    May 18, 2014 at 3:12 PM

    Thanks for this article. It is very clear that we need to ensure that at least our own term plan application should be done by ourselves not by agent…also better to buy online.

  21. Vinod says:
    May 18, 2014 at 3:12 PM

    Thanks for this article. It is very clear that we need to ensure that at least our own term plan application should be done by ourselves not by agent…also better to buy online.

  22. Mohan Mankad says:
    May 11, 2014 at 8:31 AM

    VERY INSIGHTFUL!!!! all articles are superb!!!

  23. Mohan Mankad says:
    May 11, 2014 at 8:31 AM

    VERY INSIGHTFUL!!!! all articles are superb!!!

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