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    7 point guide to choose a Term Insurance based on Claim Settlement records

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    The need to have a term life insurance is often emphasized, especially for those having responsibilities like taking care of dependents or having liabilities like loans. Term insurance becomes more attractive as it gives immense tax benefits to you. The premiums paid for term insurance can be claimed as a deduction under Section 80C of the Income Tax Act. If used to the fullest, this tax benefit can lead to an annual tax saving of over Rs 46,000 to you. However, anecdotal stories of an insurance claim getting rejected keep coming up to discourage you from buying the term insurance you have been planning for so long. While anecdotal stories of an insurance claim getting rejected are common and could discourage from buying term insurance, perhaps instead of relying on anecdotes, let’s take a closer look at the established processes and eventual outcomes.

    Term insurance can easily be bought online these days. Checking the performance of your preferred life insurance company too can be done online. The Insurance Regulatory and Development Authority of India (IRDAI) updates its rules and regulations from time to time to ensure the protection of policyholders. The rules require the insurance companies to disclose every year the details of the claims they settled in the previous year.

    Here is a 7 point guide for you to follow to buy your term insurance policy while looking at the claim settlement records.
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    1. Is the claim settlement ratio high?
    This is the most fundamental metric that will define how frequently a life insurance company accepts or rejects a claim. The claim settlement ratio of life insurance companies will be a percentage. A higher number suggests a higher probability of a claim getting accepted by the insurance company. This data for all life insurance companies is freely available on the insurance regulator’s website in its annual reports.

    2. Is the claim settlement record consistent?
    While you must ensure that the claim settlement ratio of a life insurance company has been among the highest in the latest data available, you must also take a look at the track record of the same company for the past few years. A consistently high claims settlement ratio is a good indicator, while significant variations year after year does not elicit much confidence for you as a consumer.

    3. Is the turnaround time for claim settlement process quick?
    Once you know how many or what percentage of claims the insurance company accepted in the previous year, it is time to study the details of the claims that were accepted. This you can understand by looking at the number of claims pending after three months, six months or a year after the claim was lodged with the insurance company. Here you must note that the insurance regulator has stipulated timelines for life insurance claims. Primarily, the insurance companies have to accept or reject a claim within 30 days from receiving all the required documents for the claim. In case the insurance company fails to do so, the company will pay a penalty to the policyholder over and above the claim amount. To your advantage as a customer, leading life insurance companies also publish their average turnaround time for claims on their websites. Companies with a good track record settle the claims within a day or two on average, and some companies even pay interest in case of any delay.

    4. Is the claim settlement process simple?
    The average turnaround time of an insurance company will give you an indication of the process the insurance company follows. It is very likely that a company following a simple process will have a quick turnaround time. However, you should still look into aspects like the documents that the insurance company demands a claim and how those documents can be shared. For instance, leading life insurance companies now allow their customers to make a claim intimation online to begin the claim process. The claim in term insurance also involves KYC of the beneficiary. You can also look at what process the insurance company follows to complete the KYC of the nominee in case of a claim.

    5. How good is the company’s claim paying ability rating?
    While the claim settlement ratio and its consistency will give you a fair idea of the company’s ability to pay the claims, it is a good idea to look at a professional opinion on the same. Credit rating agencies look into the financial strength of the life insurance companies to arrive at an opinion regarding a company’s claim paying ability. Usually, an AAA (read as Triple-A) rating in this regard is considered to be the best. A high rating on this parameter also suggests good standards of corporate governance in the company under question.

    6. How has been the experience of other customers?
    You have taken an objective look at the above-mentioned performance parameters of your preferred life insurance company or have made a comparison. This will bring you very close to taking the decision on which company to go for. At this stage, you can look out for company-specific claim settlement experiences of other policyholders. Here, we recommend that you look out for the company-specific claim settlement experiences of other policyholders for their opinion which backed with your data-driven insight will help you decide through real-life examples. You will be able to establish what the data is saying through real-life examples.

    7. Be truthful in your declarations
    Once you put so much effort into selecting a policy, you should also beware of what could derail a claim in a term insurance policy. It is important that you make all the declarations sought in the proposal form of the insurance company to the best of your knowledge. Details such as name, age, occupation and nature of your job, lifestyle habits like smoking and drinking should be completely disclosed. You should also disclose if you already have any other life insurance policy or if you are repaying any loans. This information is crucial for the life insurance company to determine the risk they would face and charge the premium accordingly. Similarly, existing and previous health and medical conditions should also be disclosed. If these details are not truthfully declared, it could result in rejection in case of a claim.

    In order to avoid any confusion or to be sure that your details are not missed out or misrepresented, it is a good practice to fill your policy proposal form yourself. This will eliminate the possibility of misunderstanding and misreporting. After all, it will be your near and dear ones who could face the problems if details are not correctly disclosed at the buying stage. Make sure you disclose all the details being sought, including that of existing life insurance policies, correctly. Another practice you must stick to is that of paying your premiums on time. While insurance companies also remind you at the time of policy renewal, it is possible that you might miss the text messages or email reminders. Hence, it is a good idea to enable auto-payment from your bank account for crucial purposes like life insurance.

    Now that you know how to arrive at a decision of choosing a life insurance company for your term insurance and what you should and should not do, here is a heartening piece of information for you. In India, the claim settlement ratio of all life insurance companies combined in 2017-18 was 97.68%. This means less than 3% of the total claims got rejected. Even in the previous year (2016-17) the claim settlement ratio was 97.74%. Now you can check the details of your preferred insurance companies and finally go ahead with your long-pending need of term insurance.

    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
    The Economic Times