# Why Claim Settlement Ratio Should Not Affect Your Term Plan Decision!

Highlights

## Claim Settlement Ratio or Claim Clearance Ratio is a ratio of the total number of claims paid to the nominees by the insurance company against the...

Claim Settlement Ratio or Claim Clearance Ratio is a ratio of the total number of claims paid to the nominees by the insurance company against the total number of death claims received by the insurance company. This ratio is calculated for all products of the insurance company taken together and not just a single product. It is calculated for a period of one financial year, and all ratios are measured in percentages.

IRDA Claim Settlement Ratio (CSR) is not the only way to decide your term plan investment, but life insurance buyers should not ignore it. Claim Settlement Ratio is one of the best indicators which can help them in making a right decision.

The CSR can be explained through an example:

Suppose a life insurance company received 1000 death claims during any financial year in which 975 claims are paid to the nominees of the dead,18 claims got rejected by the company, and seven claims are the remaining ones on which decision has yet to be made (1000-975-18).

• The Claim Settlement ratio =975/1000=97.5%
• The Claim Repudiation Ratio or the Claims Rejection Ratio= 18/1000=1.8%
• The Claim Pending Ratio=7/1000=0.7%

The balance claims either get rejected due to fraud, impersonation, and misrepresentation or remain pending to decide by the life insurance companies. IRDA CSR is a simple measure to use in case of term plan decision. IRDAI publishes CSR annually for the policies buyers and insurance company's knowledge.

Why your Term Plan Decision Should Not Be Based on Claim Settlement Ratio?

Claim Settlement Ratio is an important factor to be considered while buying a term plan. But buyers should not forget that this ratio is only an indicative factor and should not be the only factor on the basis of which they can make their decision. Following are the reasons that support this sentence:

CSR Calculation:

The claim settlement ratio is a product of all the life insurance products of an insurance company put together and not just the term insurance plans. The claim settlement ratio normally works in favour of those life insurance companies who have a huge non-term customer base, i.e. where most of the insurance buyers buy life insurance policy with the aim of acquiring returns than as a protection tool in an unfortunate event like death.

Frauds Committed by Consumers:

Most of the time frauds committed by the consumer's results in the downfall of claim settlement ratio and hence it cannot be considered as an important factor while making a decision. In fraud commitment cases, insurance companies can deny the claim. After a certain period when fraud is eliminated, insurance companies can settle claims for only authentic cases and this step results in lowering premiums for the insurance customers.

Early Claims:

Early Claims results in bringing down claim settlement ratio, and this is quite a common phenomenon which is seen in case of newer life insurance companies. Many claims face denials by the life insurance companies in the first two years after issuance of the life insurance policy, and these types of claims are referred as 'early claims' in life insurance industry. Newer life insurance companies have to go through many early claims situations than an older and a well-established life insurance firm. So, CSR cannot be a wise factor in deciding your investment in term insurance plan.

Investigation of frauds by Life Insurance Companies:

Some of the life insurance companies do a thorough investigation and detect all the suspicious and large value claims by the consumers before making a final payout. Such investigation often results in discovering of frauds claims and hence their rejections. But such rejections also impact company's claims ratio. Buyers of term plan must keep this situation in mind while making their decision and approaching smaller insurance companies with lower claim settlement ratio.

Conclusion:

Your chances of getting your claim approved are high when you honestly declare everything on the insurance policy application form and during your medical examination to the doctor.

You should definitely give importance to claim settlement ratio while deciding your term insurance plan but also keep in mind that this ratio should not be the only factor for your decision.

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15 Dec 2019 5:08 AM GMT

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