Claim Settlement Ratio and Term Insurance Plans

by Gopal Gidwani on September 22, 2017 · 0 comments

in Financial Planning,Insurance

Karan wants to buy a term insurance plan. But he is in a dilemma about the ‘basis’ on which he should choose a term insurance plan. Karan will have to consider a number of factors before deciding which term plan he should go for. In this article, we will restrict ourselves to three important factors that a prospective customer should consider before buying a term insurance plan. These include:

  1. Overall claim settlement ratio of the insurance company
  2. Premium of the term insurance plan
  3. Features of the term insurance plan

These days, within a term plan also, insurance companies offer variants. Karan will have to do a comprehensive study of the variants and features of various term insurance plans, determine the pros and cons and accordingly choose the best plan suited to his needs.

So let us start with the overall claim settlement ratio of the insurance company, followed by the premium of the term insurance plan and finally the comparison of features of term plans.

Claim Settlement Ratio (CSR) refers to the number of claims settled by the insurance company out of every 100 claim requests it received. Higher the CSR for an insurance company, the better. The CSR for all insurance companies, for a particular year, is published by the IRDAI in its annual report for that year.

An individual invests in a term plan with a hope that his / her dependents get the claim amount in the event he/she dies an untimely death. However if at the time of claim payment, the nominee faces hassles then the whole purpose of buying a term plan gets defeated. Hence the claim settlement ratio indirectly tells you about the company’s policies towards claim payment.

Higher the CSR of an insurance company, greater should be the confidence of the policyholder towards the company’s insurance plans. In the table given below, we have evaluated the CSR of some insurance companies for the past 3 years on the basis of figures provided by IRDAI in its annual report. The data has been arranged in descending order with the insurance company having the highest CSR for the current year been placed at the top.

Insurance companies2015-162014-152013-14
LIC98.3398.1998.14
Max Life96.9596.0393.86
Tata AIA96.894.4789.68
ICICI Prudential96.293.894.1
Aegon Religare95.3189.7881
HDFC Life95.0290.594.01
Kotak Life89.0990.7390.69
Edelweiss Tokio85.1157.1460

Please note:

  1. The claim settlement ratio data for respective years has been taken from the IRDAI Annual Reports for respective years
  2. The claim settlement ratio is overall for the company for all products taken together and not just for term plans

The above data needs to be evaluated in two ways. One; high or low level of CSR for the current year i.e. 2015-16 and the other is how consistent the CSR of a particular company is over the years. Following are the observations from the above data:

  1. LIC is the clear leader with highest CSR over the last 3 years. Also, LIC has consistently improved its CSR in the last 3 years.
  2. Apart from LIC, other companies that have a CSR of above 95% for the current year include Max Life, Tata AIA, ICICI Prudential, Aegon Religare and HDFC Life
  3. Max Life, Tata AIA, Aegon Religare, Reliance Life etc. have consistently improved their CSR over the last 3 years.

Online term insurance plans
We have chosen six online term plans as a suggestive list. These may be considered for providing financial security for your family in the event of your untimely death. While evaluating the plans we have studied the comprehensive package that is being offered by the company in their term plan. The criteria for choosing these plans are premium and some other features offered under these plans. The plan variants, death benefit pay out options and riders are discussed in detail in the latter part of this article.

InsurerLICMax LifeKotak LifeEdelweiss Tokio LifeICICI PrudentialHDFC Life
Name of the plane-TermOnline Term Plan PlusPreferred e-Term PlanTotalSecure+ICICI iProtect SmartClick2Protect 3D Plus
Annual premium (Inclusive of taxes)Rs. 8,030Rs. 4,720 (Basic life cover)Rs. 5,104 (‘Immediate pay out’ option)Rs. 4,864 (Life cover only)Rs. 6,167 (‘Life’ option)Rs. 5,550 (‘Life’ option)
Maximum plan term / tenure35 years40 years40 years62 years40 years40 years except ‘whole of life’ option
Maximum age at maturity75 years75 years75 years80 years75 years75 years except ‘whole of life’ option
Minimum sum assuredRs. 50 lakhs for non-smokersRs. 25 lakhRs. 25 lakhsRs. 25 lakhsSubject to a minimum premium of Rs. 2400 per annumRs. 10 lakhs
Maximum sum assuredNo limitRs. 100 croresSubject to underwritingSubject to underwritingSubject to underwritingNot specified

Please note:

  1. The premiums shown in the above table are for a 30 year old male (non-smoker) for a sum assured of Rs. 50 lakhs for a term of 30 years.
  2. All premium amounts have been taken from the respective company websites
  3. All the premium amounts mentioned are inclusive of Government taxes
  4. The premium amounts are as of September 2017. Interested buyers are requested to recheck these quotes with respective insurance companies before purchasing a term plan. These rates are not fixed and are subject to change.
  5. Last but not the least; we are not representing any particular insurance company…….. 🙂

LIC e-Term
e-Term is LIC’s much awaited basic online term plan. LIC’s claim settlement ratio is the highest. Also, LIC’s CSR is consistently increasing from the last three years as compared to all other insurance companies. This fact itself speaks volumes about LIC’s unmatched CSR. LIC does not offer any variant of the e-Term plan, there are no riders offered and the premium payment mode available is annual. Once the policy is issued, you are covered across the globe. Non-resident Indians (NRIs) can also apply for this plan during their stay in India. This is subject to the condition that the NRI is residing in any one of the permissible countries.

Max Life Online Term Plan Plus
Online Term Plan Plus comes in three variants on the basis of the death benefit chosen. The variants include:

Death benefit optionDeath benefit detailPremium
Basic life coverPays 100% of sum assured on deathRs. 4,720
Basic life cover + level monthly incomePays 100% of the sum assured on death + 0.4% of the sum assured per month, for 10 yearsRs. 6,136
Basic life cover + increasing monthly incomePays 100% of the sum assured on death + Increasing monthly income for 10 years. First year monthly income shall be 0.4% of the sum assured and shall increase by 10% per annum (simple interest) of the first year monthly incomeRs. 6,726

The premiums in the above table and all other tables below are for a 30 year old male (non-smoker) for a cover of Rs. 50 lakhs for a term of 30 years.

These premium amounts are as of September 2017. Interested buyers are requested to recheck these quotes with respective insurance companies before purchasing a term plan. These rates are not fixed and are subject to change.

Rider options: The plan provides two rider options

  1. Comprehensive Accident Benefit Rider: This rider provides additional cover (sum assured) in case of death or dismemberment due to accident
  2. Waiver of Premium Plus Rider: This rider waives off all future premiums on happening of either critical illness or dismemberment or death (death of the policyholder in cases where policyholder and life insured are different individuals)

Kotak Life Preferred e-Term Plan
Preferred e-Term Plan comes with an inbuilt waiver of basic premiums on total and permanent disability of the life insured. The plan offers two pay out options on death and optional accidental death benefit rider.

Benefit optionBenefit detailsPremium
Immediate pay outEntire sum assured of Rs. 50 lakhs will be paid in lump sum on death claim settlementRs. 5,104
Immediate pay out with e-accidental death benefit riderApart from above benefit, an additional accidental death benefit of Rs. 25.94 lakhs will be paid in lump sum in the event of death due to accidentRs. 6,634
Recurring pay out10% (Rs. 5 lakhs) of the sum assured of Rs. 50 lakhs will be paid in lump sum at the time of death claim settlement and 6% (Rs. 3 lakhs) of the sum assured will be paid annually for the next 15 years. The annual amount can be availed in equal monthly instalments of Rs. 24,660Rs. 4,425
Recurring pay out with e-accidental death benefit riderApart from above benefit, an additional accidental death benefit of Rs. 22.50 lakhs will be paid in lump sum in the event of death due to accidentRs. 5,753

Edelweiss Tokio Life TotalSecure+
TotalSecure+ comes in three variants as explained below.

Benefit optionBenefit detailsPremium
Life CoverOn death, the benefit amount will be paid depending on the pay out option chosen (lump sum or regular income or both)Rs. 4,864
Life Cover with ‘Basic Health Cover’Apart from the above ‘life cover’ benefit, this option provides coverage against 7 critical illnessesRs. 6,798
Life Cover with ‘Comprehensive Health Cover’Apart from the above ‘life cover’ benefit, this option provides coverage against 35 critical illnessesRs. 7,986

For the above option 2 and option 3, the critical illness (CI) cover is for Rs. 10 lakhs for this example. The maximum CI sum assured that can be chosen is equal to base sum assured.

On the first diagnosis of any of the covered critical illnesses, the entire CI benefit amount of Rs. 10 lakhs will be paid as a lump sum, irrespective of the actual expenses incurred on treatment.

The critical illness benefit is an accelerated benefit. This means if the death benefit is Rs. 50 lakhs and the CI benefit pay out is Rs. 10 lakhs, then after the pay out of the CI benefit, the policy will continue with a reduced death benefit of Rs. 40 lakhs for the remaining tenure.

Death benefit payment mode
The plan offers a choice of three options in which the death benefit payment can be availed.

Lump sumThe death benefit will be paid in lump sum to the nominee on the death of the life insured
Regular incomeThe death benefit will be paid spread over a number of monthly instalments as chosen. The number of monthly instalments chosen can be 36, 60, 120 or 180 months. The monthly instalment payable can be chosen as fixed (equal monthly instalments) or increasing (compounding annually @ 5% per annum)
Lump sum plus regular incomeThe death benefit will be paid partly as lump sum and the remaining as regular income. The proportion is to be chosen at the time of policy purchase. The minimum proportion that can be chosen in lump sum form is 1% and maximum proportion can be 99%. The regular income will be payable in the same manner as specified in ‘regular income’ section above.

The plan offers four optional riders, which include:
a) Accidental Death Benefit Rider
b) Accidental Total and Permanent Disability Rider
c) Waiver of Premium Rider
d) Hospital Cash Benefit Rider

ICICI Prudential iProtect Smart
iProtect Smart comes in 4 variants.

Benefit optionDetails of benefit offeredPremium
LifeSum assured is paid either on the death of the life assured or on the diagnosis of terminal illness. Waiver of premium on permanent disabilityRs. 6,167
Life PlusAll the benefits under the ‘life’ option are covered plus additional accidental death benefit. In the event of the death of the life assured due to an accident, the accidental death benefit will be paid to the nominee in addition to other death benefitsRs. 9,088
Life and HealthAll the benefits under the ‘life’ option are covered plus additional critical illness (CI) benefit. The CI benefit provides coverage against 34 critical illnesses. On the first diagnosis of any of the 34 covered critical illnesses, the entire CI benefit amount will be paid as a lump sum, irrespective of the actual expenses incurred on treatment.Rs. 13,443
All in OneAll the benefits under ‘life’ option are covered plus additional cover for the accidental death benefit and critical illness benefitRs. 16,364

The death benefit is lump sum of Rs. 50 lakhs for all the above 4 options.
The accidental death benefit in case of ‘life plus’ option and ‘all in one’ option is Rs. 50 lakhs
The critical illness benefit in case of ‘life and health’ option and ‘all in one’ option is Rs. 20 lakhs. If the death benefit is Rs. 50 lakhs and the CI benefit pay out is Rs. 20 lakhs, then after the CI pay out, the policy will continue with a reduced death benefit of Rs. 30 lakhs.
Terminal illness is an illness that is highly likely to lead to death within 6 months

Death benefit pay out options

  1. Lump sum: In the event of death of life assured, under this option, the entire benefit amount will be paid as lump sum to the nominee
  2. Income: In the event of the death of the life assured, under this option, 10% of the benefit amount will be paid every year for 10 years. The annual amount will be paid in equal monthly instalments.
  3. Increasing income: In the event of the death of the life assured, under this option, the benefit amount is payable in monthly instalments for 10 years. In the first year, 10% of the benefit amount will be paid, spread over 12 equal monthly instalments. The income amount will increase by 10% per annum simple interest every year thereafter.

For example, if the benefit amount is Rs. 50 lakhs, then in the first year, 10% of 50 lakhs i.e. Rs. 5 lakhs will be paid. The annual amount will be paid in 12 equal monthly instalments of Rs. 41,667 each. From the 2nd year onwards, the annual amount will increase by 10% simple interest every year i.e. Rs. 5.5 lakhs in the 2nd year, Rs. 6 lakhs in the 3rd year, Rs. 6.5 lakhs in 4th year and so on till Rs. 9.5 lakhs in the 10th year.

Benefit optionPremium for lump sum optionPremium for income optionPremium for increasing income option
LifeRs. 6,167Rs. 5,241Rs. 7,770
Life PlusRs. 9,088Rs. 8,162Rs. 10,691
Life and HealthRs. 13,443Rs. 12,517Rs. 15,046
All in OneRs. 16,364Rs. 15,438Rs. 17,967

The death benefit is lump sum of Rs. 50 lakhs for all the above 4 options.
The accidental death benefit in case of ‘life plus’ option and ‘all in one’ option is Rs. 50 lakhs
The critical illness benefit in case of ‘life and health’ option and ‘all in one’ option is Rs. 20 lakhs
The premium payment is annual for 30 years of the policy tenure

Life stage protection: The policy offers the flexibility to increase the insurance cover at key life stages of marriage and childbirth, without any medical tests:
Marriage: The life insured can increase the death benefit by 50% of the original death benefit, subject to a maximum additional amount of Rs. 50 lakhs
1st childbirth / legal adoption: The life insured can increase the death benefit by 25% of the original death benefit, subject to a maximum additional amount of Rs. 25 lakhs
2nd childbirth / legal adoption: The life insured can increase the death benefit by 25% of the original death benefit, subject to a maximum additional amount of Rs. 25 lakhs

If the life insured opts for an increase in cover, additional premium will be calculated on the increased sum assured and outstanding policy term. This feature is only available for life option.

HDFC Life Click2Protect 3D Plus
Click2Protect 3D Plus comes in 9 variants to choose from.

Plan optionBenefit offeredPremium
LifeBenefit amount of Rs. 50 lakhs will be paid in lump sum on the death of the life insuredRs. 5,550
3D lifeBenefit amount of Rs. 50 lakhs will be paid in lump sum on the death of life insured

All future premiums will be waived off on the diagnosis of any of the specified 34 critical illnesses and policy will continue.

Rs. 5,787
Extra lifeBenefit amount of Rs. 50 lakhs will be paid in lump sum on the death of the life insured.

If death happens due to an accident, additional extra life sum assured of Rs. 25 lakhs (50% of base sum assured) will be paid in lump sum.

Please note: Life insured has the option to choose the extra life sum assured up to 100% of base sum assured

Rs. 6,999
IncomeBenefit amount of Rs. 50 lakhs will be paid in lump sum on the death of the life insured.

In addition to this, monthly income of Rs. 50,000 increasing at 10% simple interest per year will be paid for 4 years

Please note: Life insured has the option to choose the level / increasing monthly income and for the period it is required to be paid

Rs. 8,102
Extra life incomeBenefit amount of Rs. 50 lakhs lump sum plus monthly income of Rs. 50,000 increasing at 10% simple interest will be paid for 4 years on the death of the life insured.

If the death happens due to an accident, additional extra life sum assured will be paid. 50% (Rs. 25 lakhs) of the extra life sum assured will be paid in lump sum and remaining in monthly instalments (Rs. 50,000 per month) for 4 years.

Please note: Life insured has the option to specify the additional extra life sum assured to be paid if the death happens due to an accident. 50% of the extra life sum assured will be paid in lump sum on death and remaining in monthly instalments spread over the income period specified.

Rs. 10,303
Return of premiumUnder this option, if death happens during the policy tenure, then Rs. 50 lakhs will be paid as lump sum.

If the policyholder survives the entire policy tenure, then on policy maturity, all the premiums paid during the policy tenure will be returned to the policyholder

Rs. 14,258

The above premiums are for a 30 year old male (non-smoker) for a sum assured of Rs. 50 lakhs for a tenure of 30 years.
Apart from the above 6 variants, the company offers 3 more variants under this plan. These include: Income replacement, life long protection and 3D life long protection. For more details of these variants, please refer the company website.
In case of extra life option, the ‘extra life sum assured’ has been considered at 50% (Rs. 25 lakhs) of base sum assured (Rs. 50 lakhs). The insured has the option to choose the ‘extra life sum assured’ up to 100% of the base sum assured.
The premium payment is annual for 30 years of the policy tenure
In case of all the above 9 options, the death benefit amount will be paid in lump sum on diagnosis of terminal illness. Also, all future premiums will be waived off upon accidental total permanent disability.
These premium amounts are as of September 2017. Interested buyers are requested to recheck these quotes with respective insurance companies before purchasing a term plan. The rates are not fixed and are subject to change.
The death benefit, acceleration of death benefit on terminal illness and waiver of premium on accidental total permanent disability benefit is provided under all the variants.
Waiver of premium on the diagnosis of critical illness is provided under 3D life option and 3D life long protection option.
The extra life sum assured due to accidental death is provided under extra life option and extra life income option

Life stage protection: The option allows you to increase the basic sum assured at specified events of marriage and childbirth, without any medical tests:
Marriage: The life insured can increase the death benefit by 50% of the original death benefit, subject to a maximum additional amount of Rs. 50 lakhs
1st childbirth: The life insured can increase the death benefit by 25% of the original death benefit, subject to a maximum additional amount of Rs. 25 lakhs
2nd childbirth: The life insured can increase the death benefit by 25% of the original death benefit, subject to a maximum additional amount of Rs. 25 lakhs

The life stage protection option is available under all plan options. An additional premium will be charged for an increase in the sum assured. The premium rate shall be based on the age of the life assured and outstanding policy term at the time of exercise of the option.

Conclusion
We have tried our best to bring the most basic version of the term plan offered by each insurance company to the same comparison level. However, a 100% like-to-like basis comparison will not be possible because the basic version of term plans offered by some insurance companies has in-built rider/s.

Apart from the basic version of the term plans, we have presented a comparison of variants of the term plans offered and a brief about their features. An individual may consider a term plan variant depending on their specific requirement/s like:

  • Whether a simple plain vanilla plan that pays a lump sum amount on death is required or
  • Whether monthly payment (level or increasing annually) is required on death or
  • Whether coverage for critical illnesses is required
  • Whether rider/s is /are required
  • Whether coverage is required till the usual retirement age of 60 years or beyond
  • Whether option is available to increase cover on specific events like marriage/child birth
  • Whether a combination of multiple features listed above are required and accordingly if the plan can be customised to suit a specific requirement

Whatever be your specific requirement, we sincerely hope that this article helps you in identifying your term insurance plan to some extent. Last but not the least; we are not representing any particular insurance company…….. 🙂

If you are still not sure which term insurance plan suits your needs, then you can leave your contact details with Coverfox. One of their trained insurance experts will help you in analysing your needs and selecting a term insurance plan that will best cover your family. Coverfox also offers the ‘Nominee Assistance Program’ for all customers who have bought term life insurance through it. In the event of a claim, the services provided under this program include:
1) Claims assistance: Coverfox will help your nominee(s) with guidance on paperwork, assistance in claim form filling, do regular follow up with the insurance company and provide claim status updates at every step of the claim process.
2) Legal Assistance: To ensure hassle-free claim settlement, your nominee can avail legal assistance in will creation, will management and succession planning and execution.
3) Financial Assistance through a mobile-based application, you can upload all your financial documents and assign accessing rights to your nominee for fast-tracking the claims process.
4) Psychological counselling through trained professionals so that your nominees can overcome the grief with care and comfort.

All these services under the ‘Nominee Assistance Program’ are absolutely FREE and anyone who purchases a term life insurance plan through Coverfox is automatically enrolled in this program. Once enrolled, the nominee will be assisted for other life insurance policies (not bought from Coverfox) too.

Coverfox has tie-ups with India’s leading life insurance companies like HDFC Life, ICICI Prudential Life Insurance, Max Life Insurance, Edelweiss Tokio Life Insurance, Aegon Life Insurance etc. To receive expert guidance on the term insurance plan you should purchase and to avail the benefits of other services offered by Coverfox, you can leave your contact details here. An insurance expert from Coverfox will get in touch with you and guide you further.

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