While selecting the best life insurance policy for you, below five parameters can be considered:
1. Claims Settlement Ratio: This ratio indicates the %age of claims passed by an insurance company; the higher the better. A higher CSR implies that the insurance company provides the right insurance cover to the right people, and later settles most of the claim in the event of an emergency.
Average Claim Settlement Ratio for the last 3 – 5 years can be compared to shortlist a more reliable insurance policy.
2. Number (& Amount) of claims passed: Even if the above ratio is good, we will not be comfortable investing in an insurance company that has very few number of claims (or the amount of claims) passed. A very low number of claims passed (say for instance, less than 10,000 claims in a year) implies that the insurance company is not that active in India.
3. Solvency Ratio: Solvency Ratio indicates whether the company’s cash flow is capable of meeting the company’s liabilities (both long-term & short-term). Solvency ratio = (Net income + Depreciation) / Liabilities.
Higher Solvency Ratio (say for instance 200%) implies a strong and robust financial standing of an insurance company.
4. Policy terms & conditions: The above three parameters will help us shortlist the Top 3 insurance companies in India. However, while buying an insurance policy, we need to read (& understand) the detailed terms & conditions of a policy, especially in terms of inclusions & exclusions, riders, etc. It’s said that: “Devil lies in the details“. So peruse the policy terms & conditions in detail to avoid any last minute surprises in the event of an emergency.
5. Insurance Advisor: Lastly, the most important (but underrated) aspect is the ability of your insurance advisor. The litmus test of any insurance policy is the ease of getting claims when needed. In today’s world of online investment plans & AI / robot advisory, it is an insurance advisor who single-handedly takes responsibility for the entire documentation & claim settlement process in times of need.
Since your financial planner is the single point of contact in the event of an emergency, please introduce your financial planner to your family – so that your loved ones know whom to contact in an emergency.
So now you know whom to invite next for a dinner with your family 🙂
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The above article is penned by one of our finance mentors CA Vikram Menda to disseminate the best practices in investing and tax planning.
At Finamoat, our mission is to handhold 500 families in their financial wellbeing journey.
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