Your Money: Six factors to consider when selecting a life insurance firm

September 07, 2021 1:00 AM

The second half of 2020-21 saw a 16% year-on-year business premium growth, with more people preferring to buy single premium policies (as a protection against future loss of income).

Solvency margin of each company is published in the annual report of IRDAI, and comparison can be made on this basis.

By AP Singh & Pallavi Seth

The Covid-19 pandemic has been a wake-up call regarding the importance of life insurance in challenging times. While life insurance may still be some way from a pull product, it has achieved the status of a nudge product. The second half of 2020-21 saw a 16% year-on-year business premium growth, with more people preferring to buy single premium policies (as a protection against future loss of income).

While it is good that people are becoming more aware towards purchasing life insurance policies, it is equally important to choose a right life insurance company. Here are some factors that should be considered while choosing a life insurance company:

Claims ratio: Claim settlement ratio (CSR) is simply the percentage of claims settled by an insurance company against total claims received each year. A high CSR shows that it’s easier to settle claims with the company. Lot of weightage is given to the claim settlement ratio to assess the customer friendliness of life insurers.

Products offered: After the pandemic, consumers are looking for better life insurance products, along with personalised options. The need of the hour is flexibility in payments, innovative products, and personalised solutions. Customers should look at the product features, riders, coverages and terms and conditions provided by the companies. Web aggregators provide a clear comparison of insurance products and can help in taking the right decision.

Tech-savvy companies: With the increasing focus on social distancing and contactless transactions, more and more consumers are turning to online modes of buying and renewing life insurance. Customers should choose companies that offer digitally-enabled omnichannel systems and better online functionalities.

Solvency margins: The reputation and financial strength of the promoters of the insurance company is very important to understand whether it can manage the policyholder’s fund prudently and whether it would be able to honour its commitment. To understand the financial strength of the insurer, solvency margin should be understood. Solvency margin of a company is a measurement of its ability to meet its debt obligations, claims obligations and other financial commitments.

Higher the solvency margin, more capable are the insurance companies in settling the claims. As per IRDAI, insurers must maintain a minimum solvency margin of 150%. Solvency margin of each company is published in the annual report of IRDAI, and comparison can be made on this basis.

Service quality: Professionalism of the agent or the front sales staff talks volume about the company. Whether the agent patiently listens and understands the customer’s needs or is busy making a sales pitch without concern about the customer’s financial needs is important . The final decision should be taken only if one is satisfied with the services of the sales staff during the initial meetings.

Reviews and ratings: Ratings and reviews of the insurance companies can be quite helpful in choosing the right insurer. Although some of it may be fake and generated by competition, a volley of complaints of a similar nature against a company should not be ignored as it is a barometer of customer satisfaction.

As a buyer, one should avoid succumbing to pressure from insurers or officials and focus on buying the right product with the right company based on one‘s needs.

AP Singh is director and Pallavi Seth is assistant professor, Amity School of Insurance Banking & Actuarial Science

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