April Book Giveaway — Help a Reader and Win a Copy of the Book “Beginner’s Guide to Investing with Confidence”

by Vinaya HS on April 5, 2013

in Finance

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Reader Priya asks –

I stumbled upon your site today while searching for ideas to choose a good term plan, given that there are an array of products available online and offline. I understand that with your analysis, AEGON Religare iTerm Plan is the better of the plans in the market. I also understand that its premiums are the lowest too.

But I read another article where the claim settlement ratio was given a lot of importance along with the premium amount. So, now I am really confused since AEGON Religare does not seem to be settling claims as much as it should. I would like to know your point of view on this front.

Image of Beginner's Guide to Investing with Confidence book
While I certainly have my own set of thoughts on this topic, I’d like to throw open the floor to you and hear what you have to say (given that the key performance indicator of Claim Settlement Ratio seems to cause a lot of debate and headaches). The most well thought through response wins a copy of the brand new book “Beginner’s Guide to Investing with Confidence” from Value Research.

Deadline for your responses is next Friday (April 12, 2013) morning. I’ll pick a winner then but I will be sharing my thoughts and arguments to your responses through the week.




Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 11 comments… read them below or add one }

Ravi April 5, 2013 at 2:56 PM

Claim settlement ratio does not convey what type of claims it has settled. If you see LIC it almost has highest. But it does not say what is the percentage of claims settled for endowment, term plans and other. So the measure itself is not correct. That my View.

When a company recently steps into the business, the claim settlement ratio is usually low and it picks up as time goes through. Check for Aviva claim settlement ratio for past years in IRDA annual reports.

When it comes to term plans or anyother plans claims get rejected due to incorrect information like past disease history, not declaring all insurances we have etc. When you have given all the information correct, I do not see any possibility of the claim being rejected. I say term plans because most scrutiny is done in term plan than others due to the amount involved. I would rather say not to worry about this measure at all.

Instead one should look at solvency ratio of a company.It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the extra capital that an insurance company is required to hold to meet all the claims which arise . In other words , Solvency margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency. IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning

And when you take the term plan make sure you purchase it online, the premium is low (because no agent comission is paid)

Vinaya HS April 15, 2013 at 7:44 PM

Well said Ravi and thanks for the first comment.

Here’s another way to put things. Would you prefer –

1. An insurer who has 100,000 customers, has 20,000 claims made in a year out of which 18,000 claims are settled (CSR = 90%).

OR

2. An insurer who has 10,000 customers, has 200 claims made in a year out of which 150 claims are settled (CSR = 75%).

After all, you don’t want your insurance company running out of money by simply settling each and every claim just so that it can have a higher CSR!

In #2, the insurer might actually be running their business better simply by being extra cautious when issuing policies.

Manish April 6, 2013 at 7:01 PM

The important point to ensure while analysing the claim settlement ratios of the companies is to check that these are really death claim settlement ratios or is it just refers to claim settlement ratios, yes there is a difference between the death claim settlement ratio and claim settlement ratio.The term insurance segment is still could not find any place in the insurance market this is because majority of the people in our country don’t want to purchase these policies.so we can conclude that demand of cash value policies are higher than term insurance policies.for example in case of lic 90% of policies are cash value polices (i.e) polices like endowment,money back etc which leads to increase it’s claim settlement ratio.on contrary to this there are private insurance companies having more term insurance products in its kitty than cash value products,because of this the claim settlement ratio tends to be lower due to the presence of large “term insurance products” in total sales.Having said that we can dig that whenever there is a term insurance there is high chances of suppressing material facts.who is to be blamed for the incorrect information in the application form?the villain is often the insurance agent,He’s the one who fills up ur form instead of u.

My view and suggestion would be to disclose all the important material facts while filling up the form.This can ensure the companies that the risk is properly assessed and price accordingly.if insurance company came to know about the hidden facts which u forgot to fill it up then there is a high possibility that your claim might get denied regardless of how much claim settlement ratio the company is carrying at that point of time.Infact company’s high claim settlement ratio might not help you from deniedment of claim.There is only one common factor which can adversly affect your claim and that is the degree of your disclosures to all important facts which you know at the time of purchasing the policy. Insurance companies wants to know these facts bcoz they want to know what materially affects their decision to accept the risk.what should you do so that your claim remains valid?
1.)Don’t rely on the agent :-you know you best so fill up ur form urself.
2.)Don’t hide your health condition:-Do not hide any important medical symptoms regardless if it was happened in past or still you have it at present.
3.)Don’t avoid medical test
4)submit all genuine documents.
5.)Dont let the policy lapse.

by following all the above steps you have done all your part,there is no way the insurance company reject your claim.

Vinaya HS April 15, 2013 at 7:48 PM

Couldn’t agree more Manish. :-) Simply don’t hide anything when filling-up the proposal form!

Also, suppose you buy a policy today based on a high CSR. Suppose 10 years down the line, you suddenly find that the CSR is no longer high, what would you do then?

Obsessing over the CSR to me is short-term thinking.

Srinivas April 8, 2013 at 3:35 PM

One need not be unduely swayed by the claim settlement ratio, though a lower number makes anyone unease.

In India insurance is regulated by IRDA. As per insurance contract, if something untoward happens to the customer, the(any) company is bound to pay as per the contract. As with anyone else, company is within its right to verify the facts and deny claims if it can be proved that incorrect info was submitted at the time of taking the policy.

One thing a user is required to understand while entering into an insurance contract is that he/she has to disclose all facts to the insurance company. If it is proven that incomplete information is provided, company can reject the claim and the customer’s kin have no way to fight this. Normally agents, graciously indicate to the prospective customer that he will fill the form, and customer only needs to sign at the end. In the bargain, it is possible that some data entered by the agent may not be correct. This can lead to a problem subsequently. To avoid the above mentioned problem, one has to fill up each detail being provided truthfully, or get it filed correctly.

But for this, any relative can go to IRDA for settlement, in case, a claim is rejected without valid reason.

There are a few related facts which one has to understand. It is not that as soon as one submits the claim form, the amount will be paid. One has to necessarily put in some effort and some rounds to the insurance office. Also the agent, who helped us submitting the claim(and pocketed some commission in the bargain) may not be there to help us. Hence it is necessary to educate relatives in this, specifically the younger ones.

Coming back to the claim settlement ratio. It depends on many factors. First one is the length for which the company is in insurance business. As the longevity increases, generally settlement ration improves. Thus, LIC boasts of highest claim settlement ratio. There is a lot of information on this on blogs like JAGO INVESTOR.

In view of the above, If one gives correct details and enters into a contract with a company, one is reasonably expected to get the claim settled, in case of an untoward incident. However, one needs to be prepared for some delay.

Vinaya HS April 15, 2013 at 7:50 PM

I doubt if there is a positive correlation between the number of years an insurer is in business and the claims settlement ratio.

But, ideally yes, you would expect a positive correlation.

Sharan April 9, 2013 at 5:04 PM

I bought a i-term plan from Aegon Religare last year. My purchase experience was simple and hassle-free even though I bought it close to by birthday. My wife too purchased the same product. But sadly her experience was not so nice and customer response was delayed at every step, they did not handle communications professionally and it got very annoying.

I had researched a lot and sought opinion from few Personal Finance blog writers too. Here is my learning :
Term insurance is typically purchased for 20-30 years or more. Claim settlement ratio can be completely different at that time, considering the fact that most of these companies are new. Same is true for the solvency ratio and other figures which are used to analyze a company. In the current times of financial turmoil, financial institutions and large companies are mostly changing hands or partners so we cannot easily make a judgement about a company’s financial position many years down the line. What we can only see is the current focus, principles, attitude and ethics and hope that they remain fairly unchanged.

All these online term plans are similar in the fact that they are targeted for a particular class of people with low risk profile because they are educated, and do take care of their health better. And these are governed by IRDA which has an eagle eye. So if you are straightforward in disclosing your information, there should be no issues about claims. I would like to point out that expected service will not be denied to you as long as you are genuine and do not hide anything. In cases where you are not satisfied or get below par service/response, there are agencies to protect our (customer’s) interests.
Aegon, Bharti and Aviva offer the cheapest term plans. SBI too has recently launched eterm plan with competitive pricing. I did not consider other providers like Kotak, ICICI, HDFC and others as they are expensive compared to those above. Of all the reviews I read, AegonReligare has favorable reactions mostly. Bharti too is good, and some reviews sound too bad to be genuine :)
All said and done, there are just figures and comments.
What experience you have with the company is very subjective so don’t give too much weight to others’ experiences.

Coming to comparisons, as I am sure you would have checked out the sites of these providers, you need to decide if those add-ons provided by iTerm plan suit your needs. For me I just included the WoP on Critical illness. I advocate that you purchase separate plans for Critical/Accident insurance, but its up to you. Bharti offers a unique Family care benefit which is subject to conditions but can be useful.

Already quite a few individuals here have explored your doubt regarding the facts and figures to be considered so I will not elaborate on them. As Manish of Jagoinvestor rightly suggested to me, over analyzing will not help much and we only end up confusing ourselves. So make a choice by your gut instinct after shortlisting few options and just go for it.

Vinaya HS April 15, 2013 at 7:52 PM

Yep! A very practical answer. :-) Loved the intro!

vikrant April 10, 2013 at 7:08 PM

Hi Priya,

First of all congrats on the decision of taking a pure term plan.

I will keep it short and simple.

You have a very valid question on claim settlement ratio. Indeed CSR is important to review however keep in mind two things.
1. the CSR is given as a whole for the insurance company and not for its individual product, Initially Aegon religare website used to have the data as how many claims were filed and how many honoured and the reason for the rejection of claims that were not honoured (keep in mind that this was only for term plan) so in case you want try getting the data just for the term plan and it would be a good indicator.

2. you buy term insurance to make sure that in the event of your death your family is protected against any financial loss. hence its very critical that you don’t hide anything from the insurance company, because that can lead to your claim being rejected, now if you disclose all the information correctly then there is no way the insurance company can deny your claim, hence the CSR would not come into picture, most term claim rejection is due to the fact that the insurer did not disclose the right information.

Vinay has already given you all the details in his post as why Aegon looks good, so wont talk about that here, i will put something that i have with me from aegon guys.

By brother asked the below question as he drinks and this is reply from aegon (just to help you and others make better decision)

Q1- All forms of Death are covered and there is no exclusion or condition except the first year exclusion for suicide?
Ans: All forms of death are covered under the base plan, only suicidal death will be covered from the second policy year.
Q2- Do you cover in case of death due to drink and drive or drink and ride or by intake of any form of drugs, alcohol,etc? Is there exclusion and if so, can you please mention clearly?
Ans: Death due to drink & drive or by intake of any form of drugs,alcohol,etc will be covered from the second policy year as it is considered as suicide in the first policy year under the base plan.
Q3- In case I wish not to take the policy after medical test or after company deciding to increase my premium based on medical or any other condition, I will not be charged for anything and will get full refund of my money (No deduction).

Ans:In case if the customer declines the counter offer given by the company on the basis of the medical tests,and if cancels the policy then the entire premium will be refunded without any deductions, but if the policy is canceled in the free look period then the following deductions will happen- stamp cost, medical cost (if any), pro rata deduction for the premium for the life insurance cover.

Hope it helps.

Vik

Vinaya HS April 15, 2013 at 7:54 PM

Thanks Vikrant especially for your Point #1.

Priya April 20, 2013 at 7:12 AM

Vinaya, first of all, thanks for putting out this post. And readers, thanks for all your comments! Some of the points are so practical that I wonder why I did not think about it. But you have to remember that the I was totally blinded and confused by the CSR numbers. Vikrant’s comments gave me lot of additional information and I can use it to understand the policy conditions better. If I summarize all the comments, it comes to “Be honest, read conditions of term policy, buy if premium and conditions are acceptable, leave the rest to IRDA”. I am going to buy a policy in the coming week. On a lighter note, I sincerely hope I do not die soon !

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