Check settlement record before buying insurance policy

Jan 19th, 2012No Comments

Most people ask about returns, guaranteed or otherwise, premiums, tax breaks (not necessarily in this order) before buying a life insurance cover. Since for many the main purpose of buying life insurance cover during the first three months of every year is an exercise in tax planning, it fits the bill in that context.

Rarely do people actually bother to ask whether the insurance company can be trusted to honour a claim. Ironically, this is the most important aspect of an insurance product. In fact, that is the chief function of a life insurance policy – offering financial protection to the dependents of the policyholder on his or her death.
Understanding the claim track record

To be fair, very few know the parameter to be used to ascertain the company’s dependability when it comes to approving claims. And, it is very unlikely that your agent will volunteer to share this information, unless his company has an outstanding track record of settling claims.

So, how do you get your hands around this key determinant? Well, for starters, you can refer to the Insurance Regulatory and Development Authority’s (Irda) Annual Report for 2010-11, which was released recently and put up on its website. Every year, the report lists claim settlement, repudiation (rejection) and pending ratios for all life insurers.

While a thorough research would necessitate studying these ratios for a longer period, even a year’s data is not bad to begin with. The data sheet may look complicated, but all you have to do is focus on the percentages mentioned in brackets for each company. For instance, LIC’s claim settlement ratio is over 97%.

Claim settlement is an important criterion for all insurance covers, be it a term plan, traditional plan or Ulip, as insurance is the primary consideration,

LIC’s record can be said to be very good, especially since the public sector giant processed over 7 lakh claims during the year. Some private sector companies, in contrast, have a dismal ratio of around 50%, despite handling just a few hundred claims.

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