Why is claim settlement ratio so important for term insurance?
In India, there are many families which have a sole breadwinner for them. The income that the person earns is used for taking care of major expenses, which might leave the earning person with less money in hand. This can be disadvantageous as it could lead to lesser savings for them and their family. If an emergency were to take place and something were to happen to the earning member, their family would be left in a vulnerable position.
To ensure that your family does not have to go through a situation of financial turmoil in your absence, you should invest in term insurance.
While you are considering an insurer to purchase the policy, you need to consider their CSR. What is this ratio? Why is it so important when you want to buy the policy? Read more to find out.
What is CSR?
Before we get to CSR, let us first understand what a term insurance is. As the name suggests, this policy comes with a duration, i.e., a term. The policy offers financial protection for that much duration to the policyholder. The duration of this policy is usually between 5-20 years and can extend up to 30 years as well. If the policyholder were to suddenly pass away during the term of the policy, their family will be compensated by the insurer with a death benefit.
When you are looking at life insurance companies to purchase this policy, you will come across a term known as CSR. The CSR of an insurer indicates the number of claims which have been settled by them against the number of claims filed in a year. Higher the CSR, more reliable is the insurer.
What is the importance of this ratio?
When the policyholder passes away due to an unfortunate incident, their dependents will file a claim to get financial compensation from the insurer. There are many checks that the insurer will perform before the claim is settled and the compensation amount is disbursed. The percentage of the number of claims that the insurer settled to the number of claims received is known as the claim settlement ratio.
Insurers who have a higher claim ratio are highly reliable, as it means your claim will be settled in the shortest time possible without any hassles. This also ensures that your loved ones will not have to wait for a longer period before they get the financial assistance assured under the policy. This amount can help your loved ones to financially secure themselves in the long run without having to borrow money from outside.
However, if an insurer has a lower CSR, it indicates the difficulty that one might face after filing a claim. Insurers with lower CSR usually take long to settle the claim. A lower CSR also is an indicator that the insurer might reject the claim instantly, even if the claim is genuine. This creates an image of the insurer being less trustworthy.
How is CSR calculated?
The claim settlement ratio of an insurer is calculated using the following formula:
The total number of insurance claims settled by the insurer/ the total number of claims filed x 100= CSR
For example, if an insurer settles 850 claims out of the 1000 claims filed in a year by policyholders, 850/1000 x 100= 85%
The CSR of the insurer is 85%, which is a high ratio. This means the insurer is reliable and can be considered for your insurance requirement.
Things to remember about CSR
- The CSR of insurers keeps changing year after year. It is prudent that you stay updated with it.
- Insurers who have a CSR of more than 80% are highly considered by people looking to purchase life insurance policy.
- When you are comparing insurers, compare their CSR of the last 3-4 years to get a better idea.
The next time you are considering getting a term insurance from an insurer or want to switch your insurer, do take a note of their CSR. You can connect with your insurance advisor to get more information related to it.