Cheapest Term Insurance Plan

In our analysis of top life insurance companies based on claim processing efficiency, we shortlisted 4 insurance companies, viz, LIC, HDFC Life, ICICI Prudential and SBI Life which has the most efficient claim processing mechanism and where the probability of your claim getting settled and paid quickly is more than for other insurance companies.

In this post, we shall compare premium amount for term insurance policies from these companies and check which one out of the four is the cheapest.

Premium Amount

Tabulated below is the premium of term insurance policy for sum assured of Rs. 1 crore with term of 30 years for an individual aged 30 years:

Insurance Company	Plan Name	Premium Amount
LIC	Amulya Jeevan – II	23,300
HDFC Life	Click2Protect	10,600
ICICI Prudential	iCare Term Plan	13,800
SBI Life	E Shield	11,690

Note: Premium amount is in rupees and excluding taxes.

Based on the above it can be seen that HDFC Life’s Click2Protect term plan is the cheapest term plan available, followed by SBI LIFE E-shield.

However, HDFC Life’s Click2Protect term plan do not have an option for accidental death benefits which is available with plans of other companies at an additional premium. Further the premium amount may vary differently amongst various policies depending on the term period and age of an individual and the above ranking may not hold true.

Also note that HDFC Life’s Click2Protect plan is cheapest amongst the four insurance companies which we have shortlisted.  It may not be cheapest amongst all the insurance companies.  For eg:  Similar term plan from Aegon Religare is available for Rs. 5,800/-.

Conclusion

Based on our analysis in this as well as previous post, we can conclude that HDFC Life’s claim processing is most efficient and it has one of the cheapest term insurance plan.

Top Life Insurance Companies based on Claim Processing Efficiency

It is always difficult to choose life insurance companies for insurance cover.  There are various parameters which one needs to go through.  One of the most important parameters out of this is claim processing efficiency of life insurance companies.  Remember, for term life insurance, claim arises after your death.  Hence your family members need to make a claim and follow up with life insurance company for settlement.  Thus you need to ensure that their experience is hassle-free.

With this in mind, Bachhat has analysed claim processing efficiency of all life insurance companies for last 4 years (from 2009-10 to 2012-13).  While there is lots of data to play around with, presented below are key charts and takeaways for the readers.

Best 5 companies in settling claims

This is ascertained from low claim rejection rates.  Lower the rate, the better.

The largest player, LIC has the lowest rejection percentage as compared to all other insurers.  HDFC Life (erstwhile HDFC Standard), Star Union Dai-ichi, ICICI Prudential and SBI Life follows in that order.

Worst 5 companies in settling claims

Edelweiss Tokio has the highest claim rejection rate.  This is followed by Aegon Religare, Shriram Life, India First and Future Generali.  Pertinent thing to note here is that new companies have high claim rejection rate in initial years.

Time taken to settle claims

Another aspect to look is the time taken to settle once the claim has been filed in all proper respect with the insurance company.  Lesser the time, the better.

Based on FY12-13 data, DLF Pramerica has the worst record in this with only 3% claims settled within 1 month and as much as 58% taking atleast 6 months to get settle.  Similarly, Sahara, Star Union Dai-ichi, Edelweiss Tokio and Canara HSBC have substantial delays in settlement.

Let us also take a look at claim settlement record of best 5 companies which were shortlisted based on claim rejection rate above.

All companies, except for Star Union Dai-ichi, have good claim settlement record.

Outstanding Claim Analysis

Another way to look at delays in claim settlement is by analysing the ageing of claims outstanding.  Lets look at the ageing of claims outstanding for above 5 companies as of 2012-13.

From the above, it can be seen that out of total claims outstanding at the end of 2012-2013, for LIC 60% of  claims were outstanding for more than 3 months and almost 1/4th were outstanding for more than a year.  ICICI Prudential and HDFC Life fared better in this with only 17% and 4% of claims respectively outstanding for more than 3 months.

Conclusion

Based on the above, it can be concluded that ICICI Prudential, HDFC Life and SBI Life are most efficient in claim settlement process.  LIC also has decent record of claim settlement, but at times claims may get stuck.  In our subsequent analysis, we shall compare the competitiveness of the term plans of these companies.

PS:  Kindly note that above analysis has some inherent limitation such as (i) new insurance companies having sub-optimal claim settlement ratios, (ii) the analysis covers not only term plans but all life insurance plans (settlement ratios for term plan may drastically vary from this, but specific information for term plan is not available), etc. 

What has been your claim settlement experience?  Kindly share it with other readers in the comment section below.

Will life insurance company honour the claim after your death?

In November 2010, Bachhat carried out a claim settlement analysis of life insurance companies to understand which company provides the assurance of quick settlement of claims.  The analysis carried out in November was based on the data for the year 2009-10.  Bachhat had stated to do more such analysis in future and today we shall have a look at how the life insurance companies have fared in their claim settlement for the year 2010-11.

Why claim settlement analysis is important?

Before deep diving into the analysis, let us recap why the analysis of claim settlement is important.  Besides the premium charged by the insurer, two additional important things one should consider before choosing an insurer is the probability of getting the claim settled in the event of the death and the time taken to settle the claim. 

Nobody will like to be in a situation where one has paid the premium diligently for 20 years and after his death, the claim is disapproved for any reason.  One will also not like to be in a situation where his family gets the insurance proceeds after 6 months or say even after 1 year of the death.  Hence it is necessary to do the analysis of claims settled by the insurance companies.  It will help you know which company rejects the least number of claims and process the claims quicker.

Claim Settlement Analysis

The table below gives the best five and the bottom five life insurance companies in terms of claim rejection for the year 2010-11.  Best companies have the least claim rejection ratio whereas bottom five companies have the highest claim rejection ratio. The list is further broken down into how old these rejected policies where when the death occurred.  Older the policies less should be the chance of rejection. 

Best five insurance companies in terms of claim rejection

Insurer	% Claims Rejected	< 2 yrs old policy	> 2 yrs old policy
LIC	1%	92%	8%
Star Union Dai-ichi	1%	100%	0%
ICICI Prudential	3%	82%	18%
ING Vyasa	4%	88%	12%
Kotak	4%	92%	8%

Bottom five insurance companies in terms of claim rejection

Insurer	% Claims Rejected	< 2 yrs old policy	> 2 yrs old policy
Aegon Religare	45%	100%	0%
Shriram Life	26%	88%	12%
Future Generali	22%	100%	0%
IDBI Federal	21%	94%	6%
DLF Pramerica	20%	100%	0%

LIC is the best amongst the entire lot of insurance companies with only 1% of the claims getting rejected.  ICICI Prudential and Kotak Life are amongst the private insurance companies making it to the best five listing.

Aegon Religare tops the list of bottom five companies with 45 out of every 100 claims rejected during the period under review.  Shriram Life, Future Generali Life, IDBI Federal and DLF Pramerica are other insurance companies which have claim rejection ratio of greater than 20%.

If we notice the age of the policies for which claims are rejected, mostly all of them are less than 2 years old.  In Aegon Religare case, all the claims rejected are for policies less than 2 years old.  The relevance of 2 years is insurance company can not reject claims for policies which are more than 2 years old on the basis that the policy was taken based on misrepresented facts, unless the insurance company shows that such misrepresentation was material and fraudulently made and policy holder knew that he is misrepresenting material fact.  Thus, generally unless proved otherwise by the insurance company, claim pertaining to policies more than two years old should get settled.  However, that does not mean that any claims made within first 2 years of the policy should be rejected.  Such claims can go for additional scrutiny but should get settled if found in order.

Thus it becomes interesting to know the companies which have rejected most numbers of claims for policies greater than 2 years.

Insurer	% Claims Rejected	< 2 yrs old policy	> 2 yrs old policy
SBI	17%	58%	42%
Aviva	12%	72%	28%
ICICI Prudential	3%	82%	18%
Bajaj Allianz	7%	83%	17%
ING Vyasa	4%	88%	12%

For eg. SBI Life has rejected 17 out of every 100 claims made.  42% of such rejected claims are for policies in force for more than 2 years.  There has to be very compelling reasons to reject such claims and it shall be interesting to know about such reasons. 

It shall also be interesting to know how many of the claims made within first 2 years of the policy are settled.  Unfortunately, the insurance companies are not mandated to provide such details.

Another way to look at the claim rejection ratio is to check whether such high rejection ratios are one time event or a regular feature.  The graph below provides claim rejection ratio for all life insurance companies for last two years and one can notice that there has not been substantial difference in the two years.  Furthermore, many of the companies have rejected more claims in 2010-11 as compared to in 2009-10.

Claim Turnaround Time 

Let us now look at the time taken for insurance companies to settle the claim once they receive claim intimation from the claimant.  There can be some delays due to additional documents required by the insurance companies or on account of certain queries raised on the policies.  However, generally the claim settlement should not be prolonged.
 
There are insurance companies where more than 50% of the claims submitted are outstanding for more than 3 months.  The graph below provides an overview, with the quickest turnaround companies at the top and the slowest at the bottom.  The colours in each bar represent the time taken to settle the claims.

Sahara has the worst turnaround time followed by Future Generali Life and Shriram Life.  The better way to look at this could be to see the response time once all the documents relating to claim are submitted by the claimant.  Bachhat is compiling list of such instances and shall do a follow up post on the same.

Conclusion 

LIC stands out with the lowest claim rejection ratio and also a decent turnaround time.  In private sector, Kotak Life and ICICI Prudential have low claim rejection ratio.  Kotak Life is better than ICICI Prudential in rejecting claims for policies in force for more than 2 years, whereas ICICI Prudential scores over Kotak Life in claim turnaround time.  Companies like Aegon Religare and Star Union Daichi have started operations in last 2-4 years and we need to give them more time so that more sensible analysis can be carried out on their claim settlement details.

Thus the cheapest term plan available may not be the best one to opt for.  One has to also look at the company’s claim settlement ratio as well as claim turnaround time before zeroing on any insurance company.

Have any of yours insurance claim got rejected? I shall be happy to hear your experiences, views and suggestions in the comment section below.

Post revised on January 12, 2012

Data source for analysis: IRDA Annual Report 2010-11 and Insurance companies website

Health Insurance Portability from October 1: Fine Print

Insurance Regulatory and Development Authority (IRDA) had in February 2011 instructed insurance companies to provide health insurance portability from 1st of July 2011.  This was subseqeuntly deferred and now is all set to get implemented from 1st October 2011. 

Health insurance portability will help policyholders to change their insurer without losing any credit or benefit for the period of cover with the existing insurer.  This helps the most in cases of pre-existing diseases since for every new policy; pre-existing diseases are excluded from the health insurance cover for a certain period from the date of commencement of the policy.  With portability in place, the policyholder will get the benefit of the period served under existing insurance policy when he changes the insurer. 

Read more about health insurance portability here

How portability works? 

The final guidelines issued by IRDA states that in case a policyholder wants to change the insurer, he has to apply to the new insurer 45 days before his policy with the existing insurer is due for renewal.  Otherwise, the insurer has a right to reject the offer for portability.  This ensures that the new insurer has reasonable time to verify history of claims which shall be available on common database to all insurers.  This database shall contain two years history of any claims made by the policyholders. 

On receipt of application for portability, the new insurer shall furnish the Portability Form along with Proposal Form and other relevant product literature.  The policyholder has to fill in all the forms and submit the same to the new insurer. 

Within 7 days of receipt of the completed portability and proposal form, the new insurer, if required, can ask to existing insurer additional information about the policyholder in the prescribed format.  The existing insurer is bound to provide such data within 7 days of receipt of such request. 

Based on the information received, the new insurer shall decide to issue health cover to the policyholder.  In case, the new insurer does not communicate its decision within 15 days, then it is assumed that the application has been accepted and later on it cannot reject such application. 

Where on the date of renewal of existing insurance policy, the outcome of acceptance of portability is still pending with the new insurer:

1.     if requested by policyholder, the existing policy shall be allowed to be extended for a short period (atleast one month) by accepting pro-rata premium for such period,       

2.     the existing policy shall not be cancelled until such time a confirmed policy from new insurer is received or if otherwise instructed by the policyholder,

3.     the date of commencement of risk of the policy issued by new issuer shall match the date of expiry of the short period in such cases and

4.     in case, for any reason, the policyholder subsequently chooses to continue the cover under existing insurer, it shall be allowed to continue by charging a regular premium and without imposing any new conditions.

Thus it can be seen that ample safeguards are provided in the guidelines to ensure that the policyholder has adequate options and is not without cover at any point of time while the portability is in progress. 

Treatment of Pre-existing Diseases 

It is important to understand how the pre-existing diseases shall be treated after the portability to the new insurer.  The waiting period to be served for allowing pre-existing diseases to be covered with new insurer shall be calculated after including the number of years of insurance cover with existing insurer.

For eg:  In the health insurance policy of the new insurer, if the pre-existing diseases have waiting period of 3 years and the policyholder has completed two years of insurance cover with existing insurer, he has to wait for additional one year to ensure the pre-existing disease is cover.   The guidelines ensure that such additional waiting period is explained by the new insurer to the policyholder. 

Treatment of No Claim Bonus 

In case a policyholder does not make any claim in a particular year, he is entitled to no claim bonus at the time of renewal.  This no claim bonus can be either by way of reduction of next year’s premium or by increase in the amount of sum assured.  In case of portability, policyholder has the option to club cumulative bonus acquired under previous policy with the sum assured and treat such higher amount as revised sum assured.  However in such cases, it shall lead to high premium charges. 

For eg:  Assume a policyholder having health insurance policy of Rs. 1,00,000.  He has also earned cumulative bonus of Rs. 25,000 over the years.  Now if he decides to change the insurer and opts to club the cumulative bonus of Rs. 25,000 with Rs. 1,00,000, Rs. 1,25,000 shall be treated as revised sum assured and premium shall be based on such higher revised sum assured. 

There is one more thing to be aware of in such cases.  Suppose the new insurer provides the health insurance cover for Rs 50,000 and in multiples thereof.  Then in our above example the sum assured shall automatically stand increase to Rs. 1,50,000, since the insurer cannot provide cover for Rs. 1,25,000.  The premium one pays shall be based on cover of Rs. 1,50,000.  However portability benefits shall be available only up to Rs. 1,25,000 and not on the entire cover of Rs. 1,50,000. 

Group mediclaim policy to individual health policy 

Individuals who are covered under group mediclaim policy, such as one provided by the employer, shall have the right to migrate from such a group policy to an individual health policy with the same insurer.   One year after such migration, they can migrate to any other non-life insurers. 

Thus it can be seen that guidelines have tried to cover all possible scenarios and simultaneously tried to minimize trouble to the policyholder.  We need to wait and see how this is being implemented by the insurers and how much the policyholders are benefited.  But for policyholders who have bad experiences with their current health insurance provider, health insurance portability is a good option to avail of.

One should keep in mind that portability does not means the premium shall remain the same.  The premium applicable to the scheme of new insurer chosen by the policyholder shall be applicable.  Further the new insurer also has right ‘to load’ the premium based on the claim history of the policyholder. 

Do let us know your comments and views on health insurance portability below.

Checklist for your financial shopping

Last couple of weeks Mint had carried checklists for various financial products which one needs to fill up and understand before purchasing them.  The checklist ranges from choosing an insurance plan to a credit card.  

The ideal way will be to make the agent / relationship manager selling the product to sign on the checklist after all the details have been filled up and before purchasing the product.  This will force him to provide accurate facts about the product he is trying to sell to you and also help you to understand the key terms & conditions of the product better.  Later in the case of any dispute or doubt, you can refer to the said checklist.

Given below are the links to various checklists for your reference:

Sr. No.	Financial Product	Link
1.	Mutual Fund Investments	http://goo.gl/3K7L7
2.	Life Insurance	http://goo.gl/Bruy3
3.	Health Insurance Products	http://goo.gl/Qc5w6
4.	Auto Insurance Products	http://goo.gl/k6x3k
5.	Credit Cards	http://goo.gl/6HxLl
6.	Home Loan	http://goo.gl/98TAv
7.	Real Estate Deals	http://goo.gl/J8YWY
8.	Travel Packages	http://goo.gl/ztNtC

This is an excellent initiative by Mint and will benefit the consumers of financial products to a great extent.

Do you required a similar checklist for any other products?  Would you like to add more points in any of the checklist above?  Please provide your responses in the comments section below.  Thanks.

Original Source: Mint