It is important
to look at factors like claim settlement ratios, persistency ratios, the extent
of premium increase with age, the insurer's reputation, etc.
Choosing the right policy is not enough unless you
are buying it from the right insurance company.
Examining necessary factors initially before
purchase saves the insured from unforeseen heartache later during the claim
process.
While buying life insurance or a health insurance
policy, many people do not consider the need to examine the credentials of the
insurance company they are opting for, thus, causing disappointment in the long
run.
As opposed to comparing only the premium rates
corresponding to the coverage amount they promise, it is important to look at
other factors including claim settlement ratios, persistency ratios, the extent
of premium increase with age, insurer’s reputation, etc.
Buying life insurance
Agreeing to pay for a life insurance plan sold by a
life insurance company means that you are relying on the company to pay the
death benefits to your loved ones in the event of your unfortunate death within
the policy period.
You choose the sum assured to make up for the loss
of your income in case of death, thus, preventing any instance of financial
instability for your dependents.
To ensure that the purpose for which you buy life
insurance is served, you must check the following parameters before
investing.
- Claim Settlement Ratio
Quick claim settlement is the hallmark of a good
life insurance company.
The company must agree to pay the claim on time.
Before buying insurance, online or offline, it is
important to find out the claim settlement ratio of your company declared over
the past five years.
For greater clarity regarding the ratios, you may
also log on to the Insurance Regulatory Development of India (IRDAI)
site.
- Financial strength
To pay off the claims made by the nominees of the
insured, the company must enjoy a strong financial base.
A financially strong life insurer will have no
qualms in paying off the death benefit to your beneficiary irrespective of how
long you may have survived during the policy period.
Look at the financial strength ratings given by
independent rating firms and prefer one that boasts of persistent financial
solidity.
Check the solvency ratio of the company too as a
higher solvency ratio highlights the company’s liabilities to pay off its
liabilities.
- Reputation matters
The brand reputation of a company has a lot to do
with its ability and intent to clear the amount that is due to its customers.
An insurer that allows scope for hassle-free claim
settlement is better known among its prospective customers and enjoys more
goodwill than its peers.
- Buying health insurance
Including a health insurance plan in your
investment portfolio has become more important than ever as medical costs
continue to rise, and more people are diagnosed with lifestyle health problems
and chronic disorders.
Health insurance plans are broadly classified into
'indemnity plans' and 'defined benefit plans'.
Based on whether you wish to buy a plan that pays
off your hospital expenses or invest in a plan that pays in lump sum regardless
of the hospital expense, you choose your insurer.
However, there are other factors involved in
choosing the right health insurer.
1. Persistency Ratio
You must renew your health insurance policies each
year either with the same insurer or with a different one.
A high persistency ratio reflects whether the insurer
can retain its customers or not.
An increasing number of policyholders renewing
their policies reflects the growing trust of the customers in the insurance
company, thus, explaining a high persistency ratio.
2. Premium rises with age
Buying a health insurance plan in the later stages
of life involves higher premium payments.
However, the rate of premium increase is not the
same in all insurance companies, which means that you must assess the next 10
years’ premium charges of various insurance policies corresponding to
increasing age groups.
3. Incurred Claim Ratio (ICR)
A company can make claim
payments on the policies they have sold.
The ideal ICR value must be 75 to 85 per cent.
While a high ICR is deemed favourable, it must not
exceed 100 per cent as the latter would imply that the company gives away more
in claims than what it collects as premiums.
A very high ICR means that the company would have
to raise its premiums to manage claims better or change its product to
survive and sustain its position in the market.
A low ICR means that the claim process is either
complex or the company refrains from paying claims within the stipulated period.
4. Waiting period clause
The terms and conditions of the waiting period
differ in each insurance company, which means that one must compare the waiting
period clauses before opting to buy a plan.
While the types of waiting periods remain more or
less the same, it is the difference in duration that distinguishes one from the
other.
5. Health check-up
Some companies mandate a health check-up as a
precursor to accepting your policy proposal.
This is to tackle the pervasiveness of lifestyle
disorders that many people are afflicted with.
Suffering from pre-existing illnesses can change
the policy premium and, hence, it is important to find out claim details about
insurance companies that do not require their customers to undergo a compulsory
medical examination.
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