Choosing the right financial safety net is one of the most crucial decisions that one makes for their family. Buying a 50 lakh term insurance cover is emerging as a preferred choice for the middle-class households these days, as it offers a fairly sized risk cover at an affordable premium. However, while searching for the best deal on term plans, one often comes across a term called claim settlement ratio.
A claim settlement ratio, while a seemingly complicated metric, is not that difficult to understand. But when it comes to choosing the best term plan for your family, is a company’s claim settlement ratio really all that matters? In this guide, we have aimed to cover everything you need to know about a term insurance claim settlement ratio for a 50 lac policy.
Understanding the Claim Settlement Ratio (CSR)
The claim settlement ratio indicates an insurance company’s claim-paying capability. For instance, if an insurer has a claim settlement ratio of 98%, it means that out of every 100 death claims received by the insurance company, 98 are settled by the company.
Why Is a 50 Lac Term Insurance Plan Gaining Popularity?
A 50 lakh term insurance plan is essentially a pure risk protection plan that lets you pay a fairly priced premium in exchange for a reasonably sized risk cover. A 50 lakh term plan provides a unique combination of value and affordability that is hard to find elsewhere.
A 50 lakh term insurance cover works as an excellent risk cover for most of the Indian families. First of all, it is highly affordable; a healthy 30-year-old would be able to afford a 50 Lac term plan at a lower premium than the amount one would spend on a family outing. Secondly, 50 lakh would be a fairly sized risk cover for an Indian family to continue to live a normal life without any financial worries. Lastly, it is a pure risk protection product that does not tie up your money in complicated financial instruments that fail to give value for your money.
Why a Higher Claim Settlement Ratio Might Be Misleading Than Helpful
While a higher claim settlement ratio suggests that an insurance company is fairly honest about settling claims, here are some other factors that one must consider before finalizing the deal:
1. The Insurance Company’s Overall Claim Volume
A smaller insurer may only get 500 claims per year and settle 495 of them, giving it a 99% settlement ratio. At the same time, a bigger and more established player may get 50000 claims. and may settle 48500 of them, giving it a 97% claim settlement ratio. This may seem counterintuitive, but in reality, bigger insurance companies get more claims due to their larger customer base.
2. The Claim Settlement Ratio Covers All Products Offered by the Insurer
An insurance company’s claim settlement ratio does not differentiate between different products offered by the insurance company. In other words, the ratio is calculated based on all products offered by the insurance company, including health, life, education, and other savings plans. Consequently, if you are looking to buy a pure-term plan, the claim settlement ratio for the insurance company’s other products may drag down the overall average.
3. Claims Get Rejected for Various Reasons
While an insurance company has every reason to settle claims, most of the time, claims get rejected due to the policyholder’s failure to disclose pertinent information. In most cases, the insurance company does not reject a claim on grounds of misrepresentation or willful omission, but if a policyholder has failed to disclose a pre-existing medical ailment or if the policyholder has submitted incorrect age proof documents, the claim shall be rejected.
Important Factors to Consider Apart From Claim Settlement Ratio for a 50 Lac Term Plan
While the claim settlement ratio is an important metric to consider while choosing the best term plan, one must consider these other factors as well:
Claim Amount Settlement Ratio
The claim amount settlement ratio is a slightly different metric that determines the percentage of claim amounts that an insurance company pays out to its policyholders. If the insurance company pays out thousands of small claims but fails to pay a couple of large term insurance claims (about a 50 lakh cover), the claim amount settlement ratio shall be on the lower side.
Premium Amount and Other Riders
Every insurer sets its premium prices differently. Every insurer charges different premium rates for the same 50 lakh term insurance plan depending on a number of factors. When choosing the best term plan for a 50 lakh cover, it is necessary to compare the rates between different insurers. While one should keep the premium amount in mind while choosing an insurer, it is not advisable to base one’s decision solely on the lowest premium amount.
Apart from the basic life cover, most insurers also offer additional riders for an additional premium.
Here are some of the most important riders that one must consider:
- Critical Illness Rider: This rider provides additional financial support in the form of a lump-sum payout when the policyholder is diagnosed with a serious illness.
- Accidental Death Benefit: The accidental death rider pays an extra sum of money to the nominee upon the policyholder’s death due to an accident.
- Waiver of Premium Rider: The waiver of premium rider ensures that the policyholder does not have to pay future premiums if the insured person becomes permanently disabled.
Claim Settlement Ratio
When the claim settlement ratio is high, it indicates that the insurance company has an efficient claim settlement process. When one buys a term insurance plan, it is important to keep in mind that one day, one’s family may need to make a claim to the insurance company. Consequently, it is important to choose an insurer that has an efficient and reliable claim settlement process. One should take into account the ease of the claim settlement process offered by the insurance company.
Modern-day insurance companies are offering convenient digital features like easy document upload to make the claim settlement process easier for the nominees. Additionally, most insurers also have a local presence across India to offer better claim settlement assistance. Lastly, many insurers also provide claim managers who assist the nominee’s family in processing the claim settlement.
Tax Benefits under the Income Tax Act, 2025
The Indian government has provided certain tax benefits for term insurance plans under the Income Tax Act, 2025.
- Under Section 123 of the Income Tax Act, 2025, one may claim a tax benefit on the premium amount one pays for one’s term insurance plan, subject to the conditions prescribed under the Income Tax Act, 2025.
- If one has bought a health rider along with one’s term insurance plan, the premium amount that one pays for the critical illness rider would be eligible for tax exemption under Section 126 of the Income Tax Act, 2025.
The death benefit that the nominee receives from the life insurance company upon the policyholder’s death is eligible for tax exemption under Section 11 read with Schedule II(2) of the Income Tax Act, 2025, subject to the conditions prescribed under the Income Tax Act, 2025.
Note: The tax benefits prescribed under the Income Tax Act, 2025, shall depend upon the tax regime that one chooses while filing one’s income tax returns.
Most Common Reasons Why Claims Get Rejected By Insurance Companies
Even the best insurance companies in India, including those with the highest claim settlement ratio, tend to reject claims under certain conditions. However, most of these conditions can be avoided if one follows the below-mentioned guidelines:
Always Be Honest About Personal and Medical History
While filling the application form for the term insurance plan, it is important to be completely honest about one’s medical history, pre-existing medical conditions (if any), and family medical history. One should refrain from providing false information about one’s health status, including being dishonest about one’s tobacco and alcohol consumption.
Always Declare Any Existing Insurance Plans
One should always declare any existing life insurance plans while applying for a new term insurance plan. By doing so, one can prevent future claim settlement disputes with the insurance company.
Always Follow Up on Medical Tests if Required
If the insurance company requires one to take up medical tests before issuing the policy, it is important to take them honestly at an authorized medical testing center.
Keep Your Nominee Informed
One should ensure that one’s nominee is well-informed about the term insurance plan and knows where the policy documents are located at all times. One should always update the nominee’s contact information with the insurance company in case of any changes.
Steps to Buying Your Term Plan
- Calculate Your Insurance Needs: Ascertaining if 50 Lac is enough for you or not.
- Compare Multiple Term Insurance Quotes: Compare term insurance quotes for a 50 lakh cover from different insurers.
- Check Both Settlement Ratios: Ensure that the claim settlement and claim amount settlement ratios are both higher than 95% for a period of at least 3-5 years.
- Fill the Proposal Form by Yourself: Ensure that all the personal information provided is accurate.
- Set Up Auto Debit Facility: Set up an auto debit facility for premium payments so that your policy does not lapse due to non-payment of premium.
Conclusion
A 50 lakh term insurance plan is one of the smartest ways to invest your hard-earned money in securing your family’s financial future. While it is important to compare claim settlement ratios while choosing an insurer, one should also keep in mind other aspects like the reputation of the insurance company, claim amount settlement ratio, tax benefits, and other riders. Most importantly, one should always remain honest while filling out the application form for the term insurance plan.
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