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How to pick the right life and health insurance policy

By Vaidyanathan Ramani
November 11, 2019 09:30 IST
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It is important to look at factors like claim settlement ratios, persistency ratios, the extent of premium increase with age, insurer's reputation, etc, says Vaidyanathan Ramani.

How to pick the right life and health insurance policy

Image published for representational purposes only. Photograph: Kind courtesy

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 more well 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 too involved in choosing the right health insurer. These include:

1. Persistency Ratio 

You must renew your health insurance policies each year either with the same insurer or with a different one.

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 rise with age 

Buying a health insurance plan in the later stages of life involves higher premium payment.

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)

It is the ability of a company to make claim payments on the policies they have sold.

The ideal ICR value must be 75 to 85 per cent.

While a high ICR deems 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 their 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 period 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 checkup 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.

Vaidyanathan Ramani is head-product and innovation,

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Vaidyanathan Ramani