When it comes to selecting the right term insurance policy, the ultimate goal is clear: to secure peace of mind for your family. After all the research and decision-making, the last thing you want is for your loved ones to struggle when it’s time to claim the benefits. So, how do you choose the right insurance company that will make the process as smooth as possible?

One term that always comes up in discussions when you seek advice on which company’s policy you should buy is the ‘claim settlement ratio’.

What is a claim settlement ratio?

In simple terms, the claim settlement ratio is the number of claims an insurer has settled compared to the number of claims they received in a financial year. For example, if an insurer has a claim settlement ratio of 98%, it means they settled 98 out of every 100 claims they received during that year.

Sounds promising, right? But as Aayush Dubey, Co-Founder & Head of Research at Beshak.org, points out, “This ratio alone doesn’t tell the whole story.” He explains that it doesn’t guarantee that your family will have an easy time when it’s time to file a claim. “Just because an insurer has a high claim settlement ratio doesn’t mean your claim will be approved without a hassle,” he adds. The ratio reflects past settlements and doesn’t promise future outcomes.

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Let’s dive deeper into why relying solely on the claim settlement ratio might not be the best approach.

The limitations of claim settlement ratio:

According to Dubey, there are several reasons why the claim settlement ratio might not be the most reliable metric to base your decision on:

It doesn’t account for claim amounts

An insurance company could have a high claim settlement ratio by settling numerous small claims while rejecting larger ones. “While that percentage looks impressive, the actual money paid out might be quite low,” Dubey notes.

It doesn’t show processing time

Some insurers might have an excellent settlement ratio but take an inordinate amount of time to process claims. “Would you prefer a company with a 99% ratio that takes 4+ weeks to settle a claim, or one with a slightly lower 98% ratio that wraps it up in just 1 week? The choice is clear – speed is essential during tough times,” says Dubey.

It overlooks the claims experience

The claims experience is just as important as the claim settlement ratio, especially in times of grief. “When your family is grieving, the last thing you want is for them to deal with a complicated claims process or make endless follow-up calls,” Dubey emphasizes. Unfortunately, the claim settlement ratio doesn’t offer any insight into how smooth or stressful the experience will be.

It doesn’t reflect insurer’s financial stability

A reliable insurance company should be financially stable and capable of rejecting fraudulent claims while still honoring legitimate ones. “A high ratio doesn’t guarantee stability,” Dubey warns, highlighting the importance of financial health in the long run.

It combines various insurance products

The claim settlement ratio typically includes data for all types of life insurance products—such as endowment plans, money-back plans, ULIPs, etc. If you’re specifically looking for term insurance, this ratio might not provide the clarity you need.

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So, what other metrics should you focus on?

Dubey suggests considering other important metrics to get a more comprehensive view of an insurer’s claims track record.

One key metric is the claim amount settlement ratio, which looks at the total money paid out in claims versus the total amount of money claimed. This can give you a better understanding of the insurer’s financial capacity to settle large claims.

Another crucial metric is the speed of claim settlement. As Dubey stresses, how quickly an insurer processes and settles claims is vital during challenging times. This factor can significantly affect the claims experience for your family.

Lastly, you should also look at the claim complaints percentage. This metric tracks how many claims lead to complaints from customers, offering insight into the quality of the insurer’s service. These metrics are typically available in the public disclosures of insurance companies, which are published quarterly on their websites.

By taking these additional metrics into account alongside the claim settlement ratio, you’ll have a more well-rounded understanding of an insurer’s performance. As Dubey concludes, this broader perspective will help you make a more informed choice, ensuring that your family is well taken care of when it matters most.