It’s a great and responsible decision that you’ve taken by making up your mind to buy life insurance. With the high unpredictability factor in life and the indispensable need of having financial security, insurance is one of the better ways to protect what is most important.
However, it’s understandable if, at this point, you’re paralysed by the magnitude of contrasting information available about the many insurers and policies.With this decision being an important one, it is important that you spend some time drilling to the core and deciding what’s best for you.
Here are some key factors to look out for before picking the right life insurer for your family:
1. How Good is the Company in Settling Claims?
The only reason to investin insurance is to secure yourself with a promised pay-outin the event of filing a legitimate claim. It’s important to check if the company’s history shows a positive sign of the same.To ascertain, you can study the following ratios.
Claim Settlement Ratio
The term insurance claim settlement ratio is among the first factors that you must investigate whenever you’repurchasing any insurance policy. It essentially points towards the number of claims the company has settled as against the number of claims it received within a given period.
The higher this ratio, the better are the chances of a smooth claim settlement experience in any event of you needing to file one.
In fact, the claim settlement process that the insurer undertakes to settle your claimis also something that points out how serious and effective thatthe company is in dealing with the claims. Cumulative analysis of the past few years claim settlement data canhelp you gather a fair idea of the same.
2. Is theInsurer Profitable Enough to HonourLegitimate Claims?
Along with having a positive culture in terms of settling claims, you must also ascertain the present financial condition of the insurer to know it can settle claims in the future. You can do so by analysing the following ratios.
a) Combined Ratio
The Combined Ratio measures the sum expenses and losses incurred as a fraction of the premium earned. Essentially, it simply points out how profitable the insurance provider is every year. It is calculated by considering the insurance company’s total estimated outflow in terms of operational costs, commissions, incurred claims, and losses on its net premium earned.
A combined ratio lower than 1, means that the premium earned by the insurer is more than the expenses or losses incurred by them. On the other hand, a combined ratio of more than 1 means that the insurer has incurred more losses and expenses than the premium revenue earned.
A combined ratio of less than 1 would be your best bet for it means it has enough money to cover its costs. However, if it is very low, it might also mean that the company cuts out a lot of expenses because of claim settlement.
b) Solvency Ratio
The solvency ratio is another factor worth considering.It is calculated as the sum of net income and depreciation as a fraction of the company’s liabilities.
This ratio points towards the insurance company’s ability to meet its debts and other obligations, both over the short and long term.Basically, it is an estimate of how good, bad or averages an insurance company’s present financial situation is.
The higher the solvency ratio, the better are the chances of the insurer settling all the claims even in the extreme situations.
3. Are the Existing Policy Holders Happy?
You also need to know if the existing policy holders are happy with their decision. An accurate way to know that is by understanding the persistency ratio.
Persistency Ratio
The persistency ratio is essentially the percentage of policy holders paying the premium as against the total active policy holders. It signifies, the exact percentage of the policyholders who choose to renew their policies each year with their existing insurer.
A high persistency ratio reflects great customer satisfaction and indicates that the existing policyholders are happy with all the aspects of the insurer and renewing their policy.
It’s a great metric to gauge how good and favourable the company is for its existing client base.
4. Number of Offices
There are two aspects of this parameter:
1.The insurers with more offices, usually have higher premium cost for the same life cover
2.The insurers with less office will mostly offer services either online or on a call, so no or very little personal assistance
Therefore, you need to strike a balance. The best life insurance company will offer a balanced increment and physical presence.
You need to understand this point from the perspective of your family members who may end up filing the claim. Will they feel more comfortable dealing with a virtual entity or they will seek more personalised assistance in the stressful situation?
Remember that life insurance, especially the term insurance cover, is for your family members. They are the ones who will experience the moment of truth which will also be a stressful moment for them. Therefore, ensure that the life insurer you choose will be helpful to them.