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.

India - the country with least financially literate people??

Visa carried out an interesting survey early 2012 in 28 countries to guage the strength and weaknesses of financial education worldwide.  Five simple questions were asked like 

• Do you have and follow a household budget?, 
• How many months worth of savings do you have set aside for an emergency?, 
• How often do you talk to your children ages 5 - 17 about money management issues?, 
• To what extent would you say that teenagers and young adults in your country understand money management basics and are adequately prepared to manage their own money? and
• At what age do you think Govt. should require schools to teach financial literacy to children, so that they can better understand money management issues?

It was surprising to see that out of 28 countries surveyed, India stood 23rd, country with one of the least financially literate people.  Per the findings of the survey, only 35% of its population was termed financial literate.

Average savings set aside by Indians for an emergency is approx 1.9 months.  In addition, 41% of the younger respondents aged 18-24 were more likely to have no emergency savings at all compared to older respondents.

Families generally do not talk to their children about money and finance.  Indian families spends only 10 days a year as compared to global average of 19 days / year with their children discussing money issues.

43% of women said they do not understand personal money management issues.

This may sound surprising to many of us, but be practical and ask the above questions to yourself.  

When was the last time you made your household budget and followed it?  Do you even have emergency fund?  Do you know who much amount is available in emergency fund or ideally required?

One may argue that even though I do not do / know the above, I spend my finances rationally and am overall informed about by financial condition.  It is true that above questions alone can not determine whether you are financial literate or not, however it is also true that having a budget and keeping track of it, etc are the preliminary steps one needs to carry out in financial planning.

Are you amongst the one who does not keep track of your finances or do not know about emergency funds?

Source: 

1. Visa's http://www.practicalmoneyskills.com/resources/barometer.php

2. First post's news article

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

Has retail investor started considering equity mutual fund investments as long term?

For a retail investor, one of the best ways to have exposure to equity markets is through mutual funds.  Mutual fund industry has seen plethora of regulatory changes in last two years and it has impacted the flows of funds to the industry, more so from retail investors.

As per AMFI’s website, the retail investors’ exposure to equity oriented mutual funds as of March 2009 was Rs. 71,012 crores which increased to Rs. 1,26,813 crores in September 2009, in line with increase in overall equity market.  After that the assets under management (AUM) for equity oriented mutual funds have not changed to a large extent.  As of March 2011, retail investors’ exposure to equity oriented mutual fund is Rs. 1,32,319 crores, hardly a 5% increase in 18 months.

 

It can also be seen that the equity AUM has moved in tandem with the Sensex which reflects there has not been major growth in equity mutual funds in last two years.  However, if one digs deeper in to the data available, one can notice an interesting trend.

Also read - Guide to Mutual Fund Investment

How retail investor views investments in equity mutual funds?

Ageing of equity AUM helps us to understand since how long an investor has invested in the fund.  Longer the tenure, the better for the mutual fund industry reflecting stability and also good for the investor, since equity can be volatile in short term and should be viewed as long term investments.  AMFI website has data on ageing of AUM since March 2009.  Bachhat tried to analyse the pattern of retail investment in equity mutual fund.

As can be distinctly seen, there has been a major growth in age bracket for ‘more than 24 months’(red line).  In March 2009, around 46% of the total funds in equity AUM were invested since more than 2 years.   This has substantially increased to 62% as of March 2011.  Thus the proportion of long term retail investments in equity mutual funds has increased.  One can also notice that it has increased more rapidly after August 2009, when the entry load was abolished and has stabilised in last one year.

Also read - Investing through SIP in Mutual Fund (Part 1) & (Part 2)

Is retail investor thinking long term while investing in equity mutual fund?

Initial analysis corroborate to it however, one needs to wait for couple of years to ascertain the permanent shift in pattern of investment.

On the other hand, this shift in pattern can also be due to any of the following reasons:

1. Post abolition of entry loads and changes in commission structure, fewer new schemes have been launched and the distributors are also not incentivises to chase customers.  Hence the churning has reduced leading to longer investment tenure.
2. Many of the investors in ‘more than 24 months’ bracket may have invested during the highs of 2008-2009 and are yet to break even or make decent profit on investments.  Hence they are still holding on the investment instead of booking loss / minor profit.

Whatever may be the reason, it has lead to increase in holding period of equity investments for retail investors which is a good sign.  If this trend is maintain, it will also be a big positive for the mutual fund industry in attracting stable long term retail investments.

Since how long are you invested in equity mutual funds?  Do you view equity mutual fund investments as long term?  Do share your views and comments on this article below.  Thanks.

ETFs – More findings from the research

Continuing my yesterday’s post on ETFs – their impact on your investments?, the research paper of Jefrey Wurgler, Nomura Professor of Finance, NYU Stern School of Business “On the Economic Consequences of Index-linked Investing” has other findings which I would like to highlight in this post.

On ETFs he says that 

“…the increasing popularity of index-linked investing may well be reducing its ability to deliver its advertised benefits while at the same time increasing its broader economic costs.” 

One can estimate the size of such funds from the following. 

“Standard & Poor’s reports that as of this writing (July 2010) there is $3.5 trillion benchmarked to the S&P 500 alone, including $915 billion in explicit Index funds. ETFs now amount to $1 trillion across all asset classes and indices. Russell estimates that $3.9 trillion is currently benchmarked to its indices. This gets us quickly to about $8 trillion in easily countable products.”

No doubt as ETFs continued to get popular in countries like India, they will start making impact on index stocks and their returns.

It further states that the stock which gets included in the Index changes its return pattern 'magically' and 'quickly'.  It begins to move closely with its other constituent stocks and less closely with the rest of the market.  In statistical terms, its co-variance increases with index stocks, thus increasing its beta.  This affects various corporate investment and financing decisions taken by this particular company (Remember Capital Asset Pricing Model (CAPM) where beta of the stock is one of the inputs for calculation of Cost of Equity).

Another interesting finding of its impact on the performance of active fund managers.
  

“the popularity of indexing may not be simply a reflection of the fact that active managers are unable, on average, to beat the index – it may actually be contributing to their underperformance."

Finally ending with his conclusion

"Indices and index-based investing are innovations that are here to stay and have rightly become central to modern investing.  The consequences are here to stay as well.  Research on the magnitude of the economic distortions they cause is needed, as are suggestions how regulators and market structures might reduce them."