Beyond the Basics: How to Compare Life Insurance Companies in India


Summary

It is important to not only understand the basics of life insurance policy, but also the intricacies associated with life insurance plans so that one can be careful while selecting the policies. Here is a detailed list of things that have to be compared before buying a life insurance policy from top life insurance companies in India. 

Things to consider while comparing top life insurance companies:

Pending Claims:

Most people talk about the claim settlement ratio when it comes to comparison of insurance companies. But one needs to keep in mind that claim settlement ratio is no longer a metric to analyze the efficiency of insurance companies.

Insurance companies have almost similar claim settlement ratios nowadays. Instead, one should go for pending claims data available from the IRDAI annual reports. Pending claims are those that are not settled within the given policy year. For example, if a claim is lodged in 2023 but not settled in 2023, then it would be treated as pending claim.

IRDAI report also gives the data on the number of days the claims are pending. If more claims are pending for a longer period of time, it means that the insurance company is not resolving those claims in a timely manner. One should take the industry average of pending claims and compare it against the life insurance companies to understand their performance. 

Claim Settlement ratio:

The most common metric to compare life insurance companies is the claim settlement ratio, which is the ratio of number of claims settled to the number of claims received. Higher claim settlement ratio means that more claims are settled, which is an indication of the capability of the insurance company.

However, claim settlement ratio can be inflated by pre-closing the claims just before the end of the financial year. Pre-closure may happen either by settling the claim in full or partially – this data might not be available publicly and therefore, one cannot take this measure very seriously.

It has become a practice among insurance companies to foreclose the claim by settling a part of the claim and then reopening it if the consumer approaches the ombudsman or any other appellate authority. This way, insurance companies are temporarily inflating their claim settlement ratio. Such instances are very common in the Indian insurance market and the customer should therefore be careful.

Solvency Ratio:

Another important parameter to check is the solvency ratio of the insurance companies. Solvency ratio denotes the claim settlement capacity as well as the survival capability of an insurance company. IRDAI has mandated every life insurance company to maintain at least a 1.5 solvency ratio.

Higher the solvency ratio, stronger the financials of the company and lower the chances of going bankrupt. At least the past 3 years solvency ratio should be checked to understand the performance of the company.

If the solvency ratio is dropping continuously, then it indicates bad underwriting practices employed at the company. On the other hand, if the solvency ratio improves every year, it means the company is having robust underwriting practices which helped it to achieve the stability and even growth in solvency ratio. Since life insurance plans are long-term, one should also consider the long term survival of the insurance company. 

Premium rates:

The other important thing to consider is the premium rates charged by the insurance companies. For example, a term insurance policy with the same sum assured and policy term should have similar premiums from all the insurance companies. If there are huge differences between the premium amounts, then one should examine the reason for such differences.

Also read – 6 Steps to Reduce Group Health Insurance Premium Cost

Instead of going for the highest or lowest premium amount, you should take the average premium amount of all the insurance companies and then decide if the premiums are too far away from the average, on the lower side as well as the higher side. Some life insurance companies include the add-ons in the base policy whereas some others sell them separately. So, comparisons should be made fairly and then decisions should be taken.

FAQs

  1. What happens to the pending claims?

    Pending claims would be settled in the next financial year or closed, depending on the merits of the claim. Pending claims could happen due to various reasons such as non-submission of documents from customer’s end, non-compliance of the procedure etc. There could be some claims that are pending with the ombudsman or appellate authorities that are deemed to be closed, but might have to be opened at a later stage.

  2. Can I change my Life Insurer after taking the policy?

    No. You cannot change the life insurance after taking the policy without changing the policy. You have to surrender the existing policy and then take a new policy from a different Insurer. The concept of portability is still not allowed in the life insurance industry unlike the health insurance industry where you can port or transfer your insurance policy from one insurance company to another.

  3. What to do if I didn't like my life insurance policy?

    You can cancel your policy at any point of time or simply stop paying the premiums. Depending on the terms and conditions of the policy, you may be eligible for a refund. There could be various reasons for not liking a life insurance policy and one of the reasons could be deficiency in the service or mis-selling. When such things happen, it is better to immediately cancel the policy.

  4. Who decides the life insurance premium rates?

    The life insurance premium rates are decided by the IRDAI, which gives a range of actuarial rate for the Insurers to decide on the final premium.

  5. Which is the best life insurance policy in India?

    There is no one size fits all answer to this question. That said, the best life insurance policy is the one that best suits your needs. One of the most important aspect that you should however keep in mind when choosing your insurer is claim settlement by the insurer.

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Susheel Agarwal