What factors are to be considered while selecting the Best Life Insurance Company in India?
Life insurance is a contract between the life insurance company and the insured customer where the insurance company agrees to pay a defined sum assured known as death benefit to the nominee of the policyholder in case of sudden demise of the insured or survival benefit to the policyholder in case he/she survives the entire policy period in return for a particular amount known as premium. The premium can be paid by the policyholder in instalments or one time depending on the financial possibilities of the policyholder.
Since the life insurance is a form of contract or agreement, the validity of the coverage would be limited to the number of years mentioned in the policy contract after which the contract gets expired. There is no compulsion on the part of the policyholder to stay in the contract if he/she doesn’t like the terms and conditions at any stage of the policy period. Life insurance contracts are mutually agreed by the insurance companies and the policyholders where the period of coverage and the sum assured required are decided by the policyholder and the coverage is provided by the insurance company as requested by the policyholder.
The life insurance premium to be paid by the policyholder is decided by the insurance company at the start of the policy period and the same premium would be paid by the policyholder throughout the policy period in most of the cases, the premium is subject to change if the terms and conditions of the policy are amended by the policyholder at any point of time during the policy period. Since, insurance is a subject matter of solicitation a request is to be sent from the policyholder to the insurance company asking for insurance policy after which the insurance company will decide whether or not to accept the risk.
Are you thinking of purchasing a life insurance policy for yourself or your family member? Then it’s high time for you to consider the below factors before deciding on the best life insurance policy from the best life insurance company in India.
Claim Settlement Ratio/Time:
The main purpose of taking an insurance policy is to claim in adverse conditions and if the claim experience is not smooth then the customer would not be very much happy with the insurance company. Claim settlement ratio is the total number of claims paid by the insurance company out of the total claims received by the insurance company in a particular year. The higher the ratio, the better would be your chances of getting a claim. The claim settlement ratio may decrease or increase sometimes due to many factors such as the delay on part of the customer in providing the required documents to the insurance company, Fraud claims, incident not covered under the policy etc.
The claim settlement ratio of insurance company should be almost constant throughout the years of operation, decrease in the ratio should be analysed by the customer before making a purchase from the insurance company. The claim settlement ratio of the life insurance companies should be anywhere between 95% - 99% which is the good claim settlement ratio. It is not possible for any insurance company to have 100% claim settlement ratio as there would be few claims which doesn’t satisfy the requirement of the insurance policy.
Life insurance Corporation of India (LIC) the largest life insurance company in India has a claim settlement ratio of around 98% and the other private life insurance companies such as ICICI Prudential, TATA AIA, and SBI LIFE INSURANCE etc. are among the top life insurance companies with highest claim settlement ratio.
Highest claim settlement ratio doesn’t mean that your claim will be settled.
Likewise lowest claim settlement ratio doesn’t mean that your claim will be repudiated.
The other important factor to be considered apart from the claim settlement ratio for an insurance company is the time taken for settling the claims or the Claim settlement Time. Claim settlement time should be less which means that the nominee of the policyholder receives the claim amount within short period of time. It is important for the customer to know the time taken for settling the claims by the insurance companies. Some companies may have settled the claim within 7 days of time while some other companies might have taken 30 days to settle the claim. This time taken by the insurance companies to settle the claim is known as the Claim settlement time which is of utmost importance.
In death claims it is the nominee who would be applying for the claim amount, in such scenario the nominee might not be highly educated or knowledgeable to provide the required documents for claim settlement. The willingness of the agent of the insurance companies to get the claim settled in these cases shows the real intention of the insurance companies. There are few cases where the LIC has settled the claim within 3 days without asserting for the required documents as the death of the person is in the news and the cause of death is covered under the policy terms and conditions.
There might be some companies which require the nominee or the family members of the deceased to submit all the documents without which the claim would not be processed by the insurance company. The only way to prevent your nominee or family member from facing issues at the time of claim settlement is to provide all the details correctly in the proposal form at the time of taking the life insurance policy.
It is to be noted that whatever information provided by the customer in the proposal form is considered by the insurance company to issue the life insurance policy to the customer. Basically the insurance industry works on the concept of Utmost good faith which means that both the customer and insurance company should be true while declaring the details. The customer has to declare all the details pertaining to his health such as pre existing illness, treatments undergone and any other things mentioned in the proposal form while the insurance company should clearly mention the coverage and other exclusions to the customer before making the final purchase.
Hidden Clauses/ Conditions:
Every life insurance contract has certain terms and conditions which cannot be breached. These terms and conditions are to be mentioned to the customer before taking the life insurance policy as the customer would decide his/her acceptance of the terms and conditions. There could be certain conditions in the policy which are hidden or not explained to the customer by the agent of the insurance company and these conditions may prolong the claim settlement process. It might sometimes be difficult for the nominee of the policyholder to submit the documents related to the policyholder after his death.
For example there might be a condition in the policy copy that the death claim is payable only if the past medical history of the policyholder is submitted to the insurance company, then in this case the nominee of the policyholder may not be able to provide this to the insurance company as the nominee might not be aware of the medical condition of the policyholder at the time of taking the policy. There might be other conditions such as delay in claim intimation may lead to claim getting rejected by the insurance company even though there is a valid reason.
For instance the nominee of the policyholder might not be aware of the life insurance policy taken by the policyholder and therefore was not able to claim within 30 days as mentioned in the policy period. If the insurance company cannot this case as valid and settle the claim then the reputation of the insurance company will be at stake.
Any life insurance company may ask the nominee applying for the claim amount to prove his/her relation with the policyholder to ascertain the legal heir status. This clause cannot be considered as the one which hinders the claim settlement process as it would be the responsibility of the insurance company to settle the claim to the legal heir of the policyholder.
While settling the life insurance claim, the insurance company will mandatorily call for certain documents such as Death certificate, Post mortem certificate, Identity proof, FIR and other relevant documents. These documents are to be submitted to the insurance company failing which the claim may be rejected by the insurance company.
There can be certain terms and conditions which would not be specifically mentioned with examples but an overall meaning would be given in the policy copy. For instance self inflicted injury or hazardous activities are not covered under the life insurance policy. The complete list of these activities might not be printed on the policy copy but it of common sense for people to understand the activities which are treated as hazardous. If we take the example of death of policyholder due to bike race which is a hazardous activity is not covered under your life insurance policy.
Another example of exclusion in the policy would be the death of the policyholder for Insurance claim amount which would be considered as the fraudulent activity. The policyholder may plan to get himself killed so that his family would get the claim amount; these kinds of cases are generally rejected by the insurance companies.
The other terms and conditions might not be mentioned in the policy document line to line but might have used a common word, such terms and conditions are to be clearly understood by the policyholder before taking the life insurance policy.
Premium is the amount paid by the policyholder in return for the insurance coverage offered by the insurance company. The premium amount is decided by the life insurance company and depends on many factors such as the:
- Age of the policyholder: Life insurance premiums depend on the age of the policyholder. Higher the age of the policyholder, higher would be the premium to be paid. This is because of the mortality ratio which increases with age. Mortality rate increase with increase in age as the risk of death happening at young age is less compared to that of the old age. So, the premium is decided based on the age of the policyholder. It is advisable to take the life insurance policy once you have started earning so that the premium paid throughout the coverage period would be less than the premium paid if the policy is taken at old age. For example if a person thinks that he can save on premium if the life insurance policy is taken at 35 years of age instead of 25 years of age, then he would be mistaken as the premium to be paid by the customer at 35 years of age would be much higher.
- Sum Assured: The sum assured selected by the policyholder decides the premium to be paid. Higher the sum assured, higher would be the premium to be paid by the policyholder. It is advisable for the customer to go for Sum assured which is 10 times their annual income. It is not possible for the customers to get unlimited sum assured under the life insurance. Sum assured mentioned in the policy copy is the maximum liability of the insurance company in case of the death of the policyholder.
- Policy Term: The premium of the life insurance policy is decided by the number of years the customer wants to have the life insurance policy coverage. More the number of years more would be the premium under the life insurance policy.
- Others: If a customer is having a pre existing illness or disease, then the premium may be loaded by the underwriter as the risk of death happening due to the existing illness is high in those cases. While few companies reject these kinds of proposals some insurance companies allow them with conditions such as limited sum insured etc.
The best life insurance company is the one which can provide the best premium rates with the maximum coverage.
There are many insurance companies which offer disability coverage, terminal illness coverage etc. apart from the death cover. This extra coverage is known as the Riders or Add-ons which can be availed on payment of extra premium. While some insurance companies offer the extra coverage without charging extra premium, few insurance companies charge extra premium for the extra coverage.
The extra coverage in the form of add-ons or Riders is to be taken by the customer to enhance the coverage and the chances of getting the claim settled. One of the best add-on available under the life insurance policy is the Wavier of premium cover in case the policyholder is disabled due to an accident or in contracted with terminal or critical illness in which situations he/she may not be able to pay the premium. Under this cover the future premiums payable by the policyholder are waived off if the policyholder suffers from critical or terminal illness and Disability.
The best insurance company is the one which can offer the extra coverage without charging the extra premium from the customer. It is advisable for the customer to check the companies which offer extra cover without any additional premium while satisfying the other requirements.
Insurance in India is sold mostly by the agents or the intermediaries due to the reach of these agents to the public. An agent is a person who sells the insurance products of the insurance company on its behalf to the customers for a margin amount known as Commission. An intermediary can be an Individual agent, Bank, Insurance Broker or any other person who can act on behalf of the insurance company.
Almost 95% of the insurance policies sold are by the agents and intermediaries employed by the insurance companies. The more the agent has knowledge of the product the more the customer would be benefitted. Hence, it is of utmost importance for the customer to check the knowledge of the agent before making the life insurance policy purchase. It is the duty and responsibility of the agents to explain the coverage, terms and other conditions to the policyholder clearly before selling the policy.
Any service related to the insurance policy service should be done by the insurance agent and hence the customer must be wary while choosing the insurance agent for his/her life insurance policy. Agent should be able to guide the policyholder or the nominee in case of claim settlement process as the process might not be understood by the all people with ease.
Since the agent is given as certain amount of your premium paid as commission, he/she is expected to provide you with best possible services at any point of time during your policy period. Hence it is advisable to talk to your agent regarding the policy terms and conditions before taking the life insurance policy.
A good agent is one who tries to understand the requirements of the customers before selling the life insurance policy. Few agents may cheat customers by selling them life insurance products which generate more commission to them and these kinds of agents should be avoided by the customers. Any fraud done by the agent will damage the reputation of the life insurance companies as the agents are the one who act on the behalf of the insurance companies.
Hence the best insurance company is the one which has the best insurance agents who can understand the needs of customers before suggesting the life insurance policy to them.
Solvency ratio indicates the ability of the company to meet its future liabilities and long term commitments with the available cash flow. The higher the solvency ratio, stronger is the company. All the life insurance companies in India are expected to meet a Solvency ratio of 1.5 or 150% as stipulated by the IRDA. If any of the insurance company is not able to meet these requirements then the insurance regulator may ask the company to close its operations preventing it from further doing any insurance business until a fresh capital is infused to maintain the solvency ratio.
A company with lower solvency ratio may default on its financial obligations while the company with higher solvency ratio indicated its financial trustworthiness. Solvency ratio is the ratio of the company’s assets to its liabilities. The formula for solvency ratio can be found here:
Solvency ratio = Net income + Depreciation/ Liability
The solvency ratio is the most important thing to look in an insurance company while buying the life insurance policy. Since the life insurance contracts are extended over a long period of time, the solvency ratio of the insurance companies need to be stable enough to settle your claim in future.
If you have taken an insurance policy from an insurance company with solvency ratio less than 1.5 then the chances of your claim getting settled in the future are bleak as the company may not be able to operate with such as less solvency ratio in the future. A death claim case involves your nominees and family members who might be affected if the insurance company is not able to settle the claim due to solvency issue.
Hence, it is advisable for the customers to check the solvency ratio of the life insurance company before deciding on the life insurance policy purchase. Solvency ratio including the other mentioned factors should be considered by the customer before making the final decision.
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Life insurance is a subject matter of solicitation.