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Things To Look For In An Insurance Company Research Team | Posted On Wednesday, March 20,2019, 03:53 PM

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Things To Look For In An Insurance Company



What Is Insurance?

Insurance is a way of protecting yourself against risk. Insurance helps mitigate financial risks. Insurance is primarily availed to keep uncertainty at bay.

A body or a person or an organization that offers insurance is known as insurer or Insurance Company. The individual or body or organization that is availing insurance is known as the insured.

The insurance contract involves the insurer assuming surety in exchange for premiums. The insurer guarantees payment of sum assured. The loss may or may not be financial in nature, but it is reducible to financial terms and includes something under which the insured has an assumable interest established by ownership, pre existing relationship and possession. 

The insured would receive a contract called the insurance policy. Policy contains details of conditions and circumstances under which the insurer would compensate for damages (Settle the claim). The amount charged by insurers for the coverage set under the insurance policy is called ‘premium’. If the insured suffers damage to the assets that are covered under the policy, then the insured must submit a claim to the insurer for loss fulfillment.

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SEE ALSO:  What Is Insurance?

What Is Life Insurance?

Life insurance is a contract between the insured and insurer, under which the insurer assures to pay a sum of money in exchange for periodic premiums, upon the death of the insured. Depending on the policy, events like terminal illness or critical illness is also covered (Riders in life insurance). The policy holder must pay premiums, either regularly or one time lump sum.

Types Of Life Insurance

  • Term Life Insurance: Term insurance is the most basic form of life insurance. Under a term policy, insurer assures to pay a sum called ‘death benefits’ to the nominee / beneficiary, if the insured dies within the term of the policy. The insured pays periodic premiums to keep the policy active.

If the insured happens to survive the term, then there is no survival benefit paid out by the insurer. Term insurance is a pure risk protection plan. There are various riders that can be availed along with term insurance.

As term insurance is life insurance, the applicant must undergo a certain set of medical tests to ensure he/she enjoys good health. If you are a smoker or a drinker, then you must disclose this to the insurer at the time of availing insurance. You would still be insured, but at a slightly higher cost.

This is because insurers feel that the risk of insuring a person who is an alcoholic and / or smoker is relatively high.

The table below shows the average premium cost for term insurance availed by a 25 year old who doesn’t smoke and drink:

  • Unit Linked Insurance Plan (ULIP): Unit linked insurance plan is a mix of insurance and investment. ULIPs may be equity ULIPs and debt ULIPs.

The below table shows average premium cost for ULIP policy for 20 years:

  • Endowment Plan: Endowment policy is a type of life insurance which is a mix of insurance and savings. Under endowment policy, part of the premium is set aside for life cover and the rest is invested in debt instruments. If you survive the term of the policy, then the insurer pays out maturity benefits. Insurer offers periodic survival bonuses on money back plans. If the insured dies within the term of the policy, then the proceeds of the policy is paid out to the nominee or beneficiary. The table below summarizes the cost of availing endowment plan:

  • Money Back Policy: Under a money back policy, a certain percentage of the sum assured is paid back to the insured on a periodic basis as survival benefits.

Below table summarizes the cost of money back policy:

  • Whole Life Insurance: Under a whole life insurance policy, you would be insured over your entire life. The premiums payable on whole life insurance is higher as the coverage is offered over entire life. If the insured goes on to live till the age of 100 years, then the insurer pays out matured endowment coverage to the insured, otherwise nominee gets the money.

The below table summarizes the cost involved in whole life insurance:

  • Child Insurance: Child plan helps in building corpus for child’s growth. Child policies help in building funds for their life events like higher education and marriage. Most child policies accept annual installments or one-time payment after the age of 18 years. In case the parent dies within the term of policy, then the insurers would payout the proceedings of the child policy. Few child policies waive off future premiums on death of the life insured and the policy would continue to be active till the maturity.

SEE ALSO:  What Is Life Insurance?

The table below summarizes the cost involved in Child Insurance   

Things To Look For In An Insurance Company

Following are the things you must look for in an insurance company:

1) Higher Persistency Ratio: This ratio reflects the insurer’s record of customer retention. Higher the persistency ratio, better the insurer. This is because the ratio indicates that more policyholders are continuing with the insurer by renewing policies.

2) Less Number Of Complaints: The Insurance Company is good if there are fewer claim and non claim related complaints. This must not be the only criteria, but must also be considered. This factor reveals insurer’s history of dealing with handling customer complaints.

3)Time To Settle Claims: Lower the claim settlement time, better the Insurer. An insurer is considered good if 80% of the claims are settled within 30 days of claim submission.

4) Increase In Premiums With Age: When you buy a health insurance, you have to renew each year. You must check for the premiums over the next 10 years before choosing an insurer. Choose the insurer that offers better coverage at low premiums.

5) Check For The Percentage Of The Premium Paid Out In Claims: An ideal incurred claims ratio is 75% to 85%. A low ratio does not bode well for the insured while a high ratio of 100% shows that the Insurance Company has paid out the entire sum collected as premiums.

6) Make Sure That Your Insurer Is Financially Sound: Insurers must maintain a minimum solvency ratio of 150% or 1.5 times the solvency margin. A higher solvency ratio reflects better financial strength and the company’s ability to pay all its liabilities.

7) Claim Settlement Ratio: Higher the claim settlement ratio, better the company. This ratio depicts the number of claims settled against the number of claims filed. What’s the use of availing an insurance policy by paying all those premiums and the claim not being settled? Ensure that your insurer has a high claim settlement ratio.

The below table shows the claim settlement ratio of various insurers:

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