Best Term Insurance Plan in India: Understanding Claim Settlement Ratio

Choosing the best term insurance plan in India seems like solving a massive puzzle.  Every company in the market boasts that it is the best insurance company in the entire market and its numbers can actually prove that, but none of this can assure you that your family would continue to live a comfortable life long after you’re gone. 

So what exactly is that one thing which makes you believe in an insurance company 100%? 

Claim settlement ratio is one such extremely crucial metric that you should always be careful about when choosing a term insurance plan for your family. 

So, in this blog, we will be discussing everything about term insurance and explaining to you in layman’s language what a claim settlement ratio is and how you should choose the best term insurance plan in India.

What Is Term Insurance, and How Does It Work?

The most basic form of insurance that you can get for your family is term insurance. In this, you have to pay a small premium to an insurance company every month or on a quarterly basis, and in return you can expect your family or the person specified as your nominee to receive a certain amount of money after you die, according to the policy term that you choose. 

So what a term plan basically does is it helps replace your sudden loss of income after you die so that your family can still manage their day-to-day life and have enough money to spend on basic expenses like education, home loans, or daily expenditures until they find a replacement for that source of income.

However, term plans are purely risk-based and include no investment benefits. This directly means that a standard term plan does not give you a guarantee of any return of the premium you paid monthly or quarterly, if you survive the policy term. 

Understanding Claim Settlement Ratio (CSR)

Most of the people buy term insurance plans for their family without ever understanding what the term “Claim Settlement Ratio” even means, and that is a big problem. If you don’t know what it stands for, you can never understand what you can expect from it and what you cannot. 

What Is It? 

Claim settlement ratio (CSR) is the ratio of the number of claims an insurance company pays out against the total number of claims received in a year.

For example, if an insurer closes 100 death claims and approves all of them, then their claim settlement ratio is 100%.

How to Interpret the Numbers?

• High CSR (97%-99%): This number being high is usually a good thing because it means the insurance company has a good track record of settling claims without any complications.
• Low CSR (Below 90%): This can prove to be problematic later on for your family when they try to get access to the money you paid for because a low percentage typically means that the insurance company has a poor claim settlement record.

While a high claim ratio can be used to prove a company’s track record with cases, it is not the only factor you should account for when deciding to take a term insurance plan. Along with the percentage (98%) of claims that the company settles, you must also look at the total experience they have in this industry.

 You can do that by calculating the total number of claims they received within a year. For example, Company X settles 98 out of 100 claims, whereas Company Y settles 98,000 out of 100,000 claims; both have a 98% claim ratio, but clearly, Company Y has more experience.

Important Metrics to Look At

Along with claim settlement ratio, here are a few more important metrics that you must consider while choosing a term plan:

• Amount Settlement Ratio (ASR): The settlement ratio tells you the percentage of the money claimed that you would receive on a claim. An insurance company might pay 99 small claims but reject one big claim. So, always cross-verify the amount settlement ratio and ensure that it matches the claim settlement ratio.
• Average Claim Settlement Time: This metric tells you how many days it takes for an insurance company to process your claim. A good insurance company takes a few days to settle straightforward claims of death and pays out the sum assured.

Why Does an Insurance Company Reject a Claim?

It is almost illegal for an insurance company to reject a claim without a valid reason or proof of one. So usually, when an insurance company rejects a claim, there is a valid point behind it, and here are some of the most common reasons for it:

• Hiding Medical History: During an application process, you have to disclose your complete medical history, which might include any history of smoking, alcohol consumption, or any pre-existing medical conditions like high blood pressure or diabetes. Failure to do so can become the cause of rejection of your application at the time of collection of money. Hence, it is advised to always be honest and transparent while filling out such an application. 
• Inaccurate Information: Providing incorrect or fake information about yourself could also lead to rejection of your claim. For example, if you put someone else’s age instead of yours, it is most likely that your claim will be rejected. 
• Lapsed Policy: If you stop paying your premiums and the grace period has expired, your policy will lapse.
• Incorrect Nominee Details: The most common reason for rejection of a claim is because of incorrect nominee details. While it is important to submit your correct information, it is equally important to keep the nominee’s details up to date on the company site so that there is no problem later, when he or she tries to use the money you saved for them. 

Tax Benefits Under the New Income Tax Act, 2025

Term insurance plans offer great tax benefits under the New Income Tax Act, 2025:

• Premium Deductions (Section 123): Under Section 123 of the New Income Tax Act, 2025 (applicable under the old tax regime), you can claim a tax deduction on the premium paid for an eligible term policy. The deduction is limited to ₹1.5 lakh per financial year under section 123. To claim the deduction, the premium should not exceed 10% of the sum assured. Tax benefits under section 123 are applicable on the sum assured.
• Tax-Free Payouts (Schedule II(2)): The death benefit payout is eligible for tax exemption under Schedule II(2) of the New Income Tax Act, 2025.
• Health Riders (Section 126): If you purchase a term insurance plan with a rider for critical illnesses, the rider premium is eligible for a deduction under Section 126 of the New Income Tax Act, 2025.

Note: Tax rules are subject to change, and it is advisable to consult a tax expert before finalizing a term plan.

5 Practical Tips to Select the Right Plan

Finding the best term insurance plan, especially when you do not understand finance terms that well, can be quite difficult. However, selecting the right plan mostly depends on your family’s needs and your current situation. So here is a list of practical things that you should consider while selecting a term plan for your family:

• Calculate Adequate Cover: While choosing a plan, you should always consider the future expenses of all the people who are dependent on you, which can include your child’s higher education fees or his/her marriage. This sum should also include all the current liabilities which you might have going on, like a personal or a home loan. So the sum should be anywhere between 10 and 15 times your current annual income. 
• Choose the Appropriate Tenure: Choosing the right plan does not only involve monetary benefits, but it also involves choosing a time frame which will be beneficial both for you and for your children. So an insurance plan that lasts until your retirement age will not only take the burden off your shoulders but will also ensure that your children will be able to stand on their own feet and will be independent. 
• Purchase Riders: Riders are additional benefits that you can buy along with your term plan at an additional premium. These benefits are usually offered to cover other financial needs such as health and disability.
• Provide Accurate Information: Give correct information on the proposal form. Disclose all the necessary information about pre-existing diseases, major surgeries, and other ailments.
• Set Up Auto-Debit: To avoid the hassles of paying every single month and to avoid missing a payment cycle, always set up auto-debit in your bank account so that the money can be easily deducted on a monthly or quarterly basis automatically. 

Conclusion

There is no better feeling than knowing that your family has financial support and will continue to live a perfectly comfortable life even after you’re gone. That is why one should always plan and invest in a good term insurance plan to secure the future of your loved ones and to ensure that they are financially stable until they are grown up enough to be independent. 

When you choose an insurance plan, always go for an adequate sum assured and a clear claim settlement ratio. Lastly, remember that eligibility, underwriting terms, premiums, and everything else are strictly subject to the policy terms and conditions of the insurance companies.

FAQs

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