How to choose an insurance company for buying a term policy?

It takes more than just looking for the insurer with the cheapest rate to purchase term coverage. You might not have gotten the best item just because it was the cheapest.

What if you choose an insurer because it offered the lowest rate but ultimately went out of business? Or that it resisted paying your family members who made the claim? The entire goal of purchasing a life insurance policy is not achieved under such conditions.

What’s a term cover?

It takes some study to purchase a term insurance coverage. Let’s first comprehend what the term life cover is before we proceed. It is a sort of life insurance that ensures payment of a specific sum (sum assured) to the beneficiary if the insured passes away within the policy’s active term. Since it just covers pure risks, it is the least expensive insurance policy kind.

By considering the following elements, one can narrow down the selection of insurance providers before purchasing a term cover:

Claim Settlement Ratio (CSR)

It is the proportion of claims that an insurer (approved and paid) relative to all claims received during a given fiscal year. Consequently, a CSR of 95% indicates that 95 out of 100 claims were paid. The remainder were declined, were returned in writing, or are awaited approval.

The better it is for the buyer, the higher the CSR. Because it suggests that the insurer is more likely to keep their word.

CSR provides a useful window into the company’s claim assessment, survey, and claim underwriting processes. However, its numbers are always changing. Because of this, you need to look at a five-year average to get a sense of how consistently the insurer settles claims.

Additionally, observe how quickly the insurance resolves your claims. Be wary of insurers with a high percentage of claims that are unresolved after more than six months.

Solvency ratio

Consider a scenario where the insurer faces a sizable mortality claim due to a significant earthquake or flood. Will it be resilient enough to handle such economic shocks?

The solvency ratio is one metric used to assess an insurer’s long-term viability by comparing its capital to the risks it has incurred. It measures the insurer’s capacity to fulfil its financial commitments in a manner akin to the capital adequacy ratio of a bank.

It is calculated by comparing the number of assets the company has (over its liabilities) to its liabilities, and it effectively represents the financial cushion. Less danger of bankruptcy exists for insurers whose solvency ratio is higher.

All insurers are required to maintain a minimum solvency ratio of 1.5 by IRDA regulations.

A high solvency ratio, however, does not automatically imply sound financial standing. A player may have disclosed additional earnings or investment assets that are about to be used. Because the solvency ratio fluctuates every quarter as more policies are underwritten, look for one that is consistently high.

Brand value

Do you believe the insurance company to be reliable? The brand value reflects the confidence that customers have in the insurer. It takes a long time and a lot of effort to establish trust, which is dependent on three basic competencies: service, consistency, and transparency.

How was the service, to begin with? Browse the internet to learn what its consumers think. Use a filter to eliminate insurers that have abnormally high percentages of unfavourable client evaluations. Perhaps they don’t provide the best service possible.

Having consistency means being able to deliver the same level of service no matter whose employee you work with or which service you select. Some clients become accustomed to one service from a brand and understandably switch to another. For example, having a solid banking connection may encourage you to sign up for their insurance services as well.

Finally, transparency is important. As they say, the best course of action is candour. Does the insurance provide all the information required regarding their offering? Do life advisors there forceful and frequently present a happy picture? Or do they insist on adhering to protocols and being completely transparent? Look into complaints made against the concerned insurers regarding claims disputes, policy cancellations, and misleading sales claims to get an inkling of the insurer’s value system.

Cost of insurance

After eliminating the subpar candidates, compare premium quotes from the candidates you have left. Compare only apples to apples, though.

If a policy offers more advantages, it might have a higher premium. A term policy’s cost may increase if it has a rider such as a waiver of premium. Similarly, keeping your smoking habit a secret can result in premium reductions of 30% or more. However, if such important information is withheld, there is a substantial probability that a claim would be denied.

Additionally, premiums vary according to the length of the insurance and the method of payment.