Claim settlement ratio

Before buying a term plan, a buyer wants to know one thing: will this insurer actually pay when the time comes? The claim settlement ratio is IRDAI's public answer to that question.

The workbook lists it as one of the factors to weigh when choosing between an online and an offline term plan, alongside the size of cover available, the premium after underwriting, and the riders on offer. But it adds an important qualifier: the ratio matters less when the insured person has made full disclosure at the time of buying the policy. A claim is usually rejected for non-disclosure, not because the insurer is unwilling to pay a genuine claim.

What the number measures. A claim settlement ratio compares claims an insurer paid in a year against the claims it received in that year, shown as a percentage. Illustrative: an insurer that received 10,000 claims and paid 9,850 of them has a ratio of 98.5%.

IRDAI publishes this figure for every life insurer in its annual handbook, which is why the workbook treats it as a comparable, public data point rather than a company's own marketing claim.

Why the workbook downgrades it. A high ratio can still include claims settled after a fight, or after a long delay. And a claim honestly disclosed at the time of buying is very unlikely to be rejected regardless of which insurer is chosen. So the workbook's advice is to use the ratio as one input among several, not the deciding one — full, honest disclosure by the insured does more for the eventual payout than the insurer's brand ratio does.

Illustrative comparison.

Mrs Iyer is comparing two insurers for a Rs 1 crore term plan.

On the ratio alone, Insurer A looks safer. But Mrs Iyer's adviser points out that most rejected claims across the industry trace back to non-disclosure of a pre-existing illness or income at the time of buying — not to an insurer's reluctance to pay a clean claim. If Mrs Iyer declares her full medical and financial history honestly, her own claim experience depends far more on that disclosure than on the two-and-a-half-point gap between Insurer A and Insurer B.

Chapter 2 (Features of Life Insurance Products), section 2.7.1, lists the claim settlement ratio published by IRDAI among the criteria for evaluating a term plan, alongside cover availability, premium loading and riders. Expect a question naming criteria for selecting a term insurer, and a conceptual one on why the ratio is described as less important where full disclosure has been made.

• A high ratio is not a guarantee for one particular claim — it is a whole-of-industry-book average, not a promise about any single policyholder.
• Full disclosure at proposal stage matters more than the insurer's brand ratio. The workbook makes this the central point, not a footnote.
• The ratio is published by IRDAI, not self-reported marketing material — that is what makes it comparable across insurers.
• It is one criterion among several — cover size, underwriting outcome and riders sit alongside it in the same list.