Purchasing term insurance: Choose a policy that balances coverage and price

HDFC Life Insurance and Policybazaar have introduced HDFC Life Click 2 Protect Ultimate, a term insurance policy that promises to offer 100 per cent claim assurance. A high claim settlement ratio (CSR) is a key indicator of an insurer’s reliability.

 

Understanding claim settlement ratio

 

CSR represents the percentage of claims settled by an insurer within a financial year. “If 100 claims are filed in a year with an insurer and 98 are processed, that insurer’s CSR would be 98 per cent,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com.

 

A high CSR suggests reliability. “A CSR above 95 per cent indicates a strong claims track record, while a lower one may signal stricter approvals,” says S K Raghav, managing director, Lord’s Mark Insurance Broking Services.

 

CSR does not, however, reflect the amount paid out against premiums collected. “That metric, called the incurred claim ratio (ICR), signifies an insurer’s financial health and should also be checked before selecting an insurer,” says Kumar.

 

Why claims get rejected

 

Claims may be denied if policyholders withhold critical medical or lifestyle information. “One of the top reasons why claims get rejected is not being upfront at the time of purchase about pre-existing health conditions, smoking or drinking habits, or past illnesses,” says Raghav.

 

Fraudulent claims are another issue. “If a policy is purchased in a deceased person’s name and a fraudulent claim is filed, that can lead to denial,” says Rhishabh Garg, head of term insurance, Policybazaar.

 

Lapsed policies due to missed premiums also lead to claim rejection.

 

Policy exclusions also play a role. “Insurance policies have exclusions like deaths from suicide within the first year or accidents caused by participation in risky or illegal activities,” says Raghav.

 

Misleading advice from intermediaries can lead to denials. “Some agents advise clients to conceal facts to reduce the premiums, which can lead to claim rejection,” says Rahul Agarwal, founder and chief executive officer, Ideal Insurance Brokers. 

 

Importance of Section 45

 

Insurers have three years to investigate and reject claims based on misrepresentation or non-disclosure. “According to the amended Section 45 of the Insurance Act, after the three-year contestability period, claims cannot be denied unless the insurer can prove that the insured intentionally committed fraud,” says Kumar.

 

Choosing the right insurer 

CSR should not be the sole factor when choosing an insurer. Other considerations include the sum assured offered, available riders (such as critical illness or accidental death benefits), and flexibility in premium payment.

 

A seamless and transparent claims process is crucial. “A good company will provide online claim tracking and helpful support staff,” says Raghav.

 

An insurer’s solvency ratio also matters. “According to the Insurance Regulatory and Development Authority of India (IRDAI) regulations, insurers must have at least 1.5 times the value of their liabilities to ensure liquidity for claim settlements,” says Agarwal.

 

Raghav suggests that instead of just going for a low premium, purchasers should look for the right balance between what they pay and the protection they get.

 

Mistakes to avoid 

Underestimating coverage needs is a common pitfall. “Many buyers choose an inadequate sum assured without accounting for inflation and future financial responsibilities. Ideally, coverage should be 10-20 times your annual income,” says Garg.

 

Agarwal suggests reading the policy document carefully to understand the coverage being provided. Raghav adds that overlooking exclusions can lead to nasty surprises down the line.