Earlier in September, I did a post on the importance of term life insurance in an individual’s financial planning and also listed the companies which provide the insurance at the lowest premium.
So should you go with the company which provides the cheapest cover?
Beside the premium, another thing which should be of one’s concern is the probability of your claim getting settled in the event of the death and the probability of it getting settled at the earliest. You will not like to be in a situation where you have paid the premium diligently for 20 years and after your death, the claim is disapproved for one or the other reason. You will also not like to be in a situation where your family gets the insurance proceeds after 6 months or say even after 1 year of your death. This is why the probability of claim getting settled and the time period within which the claim amount is paid are the other two important things which one should check before buying any term cover.
One myth which people have is and the reason why they prefer LIC for insurance is that it is difficult to get the claims settled from private life insurers. Though this may be true in few cases, this type of generalization may be incorrect. In this post based on the figures submitted by insurers to the regulatory authority (which is IRDA), we will check their efficiency of claim settlement.
For the sake of simplicity Bachhat selected 6 private life insurance companies and LIC for the comparison purpose. The private life insurance companies have been selected based on those who offer cheapest term insurance premium for Rs. 1 crore insurance cover of a 30 year old male for a period of 30 years. (The premium differs significantly across companies as the age and tenure changes. Hence in case you want a cover for the tenure of 20 years or for lower value, it can be the case that the cheapest cover is provided by some other insurance company.) Next I have compared is their claim settlement ratio and turnaround time for settlement based on the data uploaded on their websites and submitted to IRDA for the financial year (FY) 2009-10. Turnaround time is the days within which the claim is settled once all the documents are submitted to the insurance company. For LIC, the latest such data available is for FY 2008-09, which has been taken. Please note that claim settlement ratio and turnaround time for settlement is cumulative for all the insurance plans offered by the company and is not specific to the term plan mentioned in the table.
Insurance Provider | Plan Name | Annual Premium3 in Rs. | Claim Settlement Ratio | % Claims Settled | |
within 1 month | within 1-3 months | ||||
Aegon Religare | iTerm Plan1 | 104002 | 48% | 46% | 42% |
ICICI Prudential | iProtect Plan1 | 10900 | 90% | 74% | 16% |
Met Life | Met Protect1 | 11600 | 87% | 58% | 27% |
Kotak Mahindra Old Mutual | Preferred Term Plan | 15304 | 87% | 100% | 0% |
SBI Life | Smart Shield | 16798 | 94% | 100% | 0% |
Bharti Axa Life | Elite Secure | 172002 | 78% | 100% | 0% |
LIC | Amulya Jeevan | 33600 | 95% | 60% | 20% |
Notes:
1. These term plans are available online only.
2. For policy term of 25 years.
3. Above premium excludes service tax and related cess, if any.
As can be seen, the claim settlement ratio of the cheapest term plan offered by Aegon Religare is poor at 48% and it also has the lowest turnaround of 46% within one month i.e. only 46% of the claims get paid within 1 month. LIC has the best claim settlement ratio of 95% however the cost of cover is more than 3 times the competitors. ICICI Pru’s iProtect plan stands out as one of the cheapest term cover with good settlement ratio of 90% and decent turnaround time with 74% of the claims getting settled within 1 month. Met Life's Met Protect plan also compares favorably.
Analysing the rejected claims reveals that most of them are for policies which are less than two years old. This may be one of the causes for low claim settlement ratio for new companies like Aegon Religare. In such case, we need to check whether it improves in the future.
To conclude, even the private insurance companies have good claim settlement history besides they offering the cheapest term plan.
This is one of the analysis carried out to help understand from which insurance company should the term insurance cover be purchased. Bachhat intend to do this analysis every half yearly to check the consistency and long term trends.
Suggestions and comments appreciated.
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