Will the life insurer honour the claim in the event of your death?

There is a tendency among people to opt for a life insurer which charges lesser premium. However, besides the premium, the two other important things one should consider before choosing an insurer are the probability of getting the claim settled in the event of the death and the time taken to settle the claim.

Nobody will like to be in a situation where one has paid the premium diligently for 20 years and after his death, the claim is disapproved for any reason. One will also not like to be in a situation where his family gets the insurance proceeds after six months or say even after one year of the death. Hence, it is necessary to do an analysis of claims settled by insurance companies.

Claim settlement analysis
The accompanying tables (I & II) lists the best-five and the bottom-five life insurance companies in terms of claim rejection for the year 2010-11. The best companies have the least claim rejection ratio whereas bottom five companies have the highest claim rejection ratio. The list is broken down into how old these rejected policies were when the death occurred. Older the policies less should be the chance of rejection.

LIC is the best among the entire lot of insurance companies with only 1% of the claims getting rejected. ICICI Prudential and Kotak Life are among the private insurance companies making it to the best five listing.

Aegon Religare tops the list of bottom five companies with 45 out of every 100 claims rejected during the period under review. Shriram Life, Future Generali Life, IDBI Federal and DLF Pramerica are other insurance companies which have claim rejection ratio of greater than 20%.

If we notice the age of the policies for which claims are rejected, most of them are less than two years old.  In the case of Aegon Religare, all the claims rejected are for policies less than two years old. 

The relevance of two years is insurance company cannot reject claims for such policies on the basis that the policy was taken based on misrepresented facts, unless the insurance company shows that such misrepresentation was material and fraudulently made and the policyholder knew that he was misrepresenting a material fact.

Thus, generally unless proved otherwise by the insurer, claim pertaining to policies more than two years old should get settled. However, it does not mean that any claims made within first two years should be rejected. Such claims can go for additional scrutiny, but should get settled if found in order.

Thus it becomes interesting to know the companies which have rejected most numbers of claims for policies greater than two years.

For example, SBI Life has rejected 17 out of every 100 claims made. About 42% of such rejected claims are for policies in force for more than two years. There has to be very compelling reasons to reject such claims and it shall be interesting to know the reasons.

It shall also be interesting to know how many of the claims made within first two years of the policy are settled. Unfortunately, the insurance companies are not mandated to provide such details.
Another way to look at the claim rejection ratio is to check whether such high rejection ratios are a one-time event or a regular feature. Looking at the claim rejection ratio for all life insurance companies for the last two years, one can notice that there has not been substantial difference in the two years. Many companies have rejected more claims in 2010-11 as compared to in 2009-10.

Claim turnaround time
Let us define claim turnaround time as the number of days taken to settle claim once all the documents are submitted to the insurance company. Usually, once all the documents are submitted, the insurance company should be quick in settling the claim either ways.  But if you think so, wish you good luck.
There are insurance companies where more than 50% of the claims submitted are outstanding for more than three months.

Sahara has the worst turnaround time followed by Future Generali Life and Shriram Life.

Conclusion
LIC stands out with the lowest claim rejection ratio and also a decent turnaround time. In the private sector, Kotak Life and ICICI Prudential have low claim rejection ratios. Kotak Life is better than ICICI Prudential in rejecting claims for policies in force for more than two years, whereas ICICI Prudential scores over Kotak Life in claim turnaround time.  Companies such as Aegon Religare and Star Union Daichi have started operations in last 2-4 years and we need to give them more time so that more sensible analysis can be carried out on their claim settlement details.

Thus, the cheapest plan available may not be the best one to opt for. One has to also look at the company’s claim settlement ratio as well as claim turnaround time before zeroing in on the insurer.

The writer is a chartered accountant. He blogs at http://bachhat.blogspot.com