Comparing Term Insurance Claim Rejections

A few days ago I posted the premiums charged by different term insurance companies, and as a follow up to that post I shared the claim settlement data of some insurers last week.

Today I’m going to share the claim settlement ratio of all 23 life insurance companies in India for the December 2010 quarter. Rejections are simply claims that the insurance company has refused to pay, and lower the rejection – better it is for you.

This is very interesting data, and the one thing that jumps out at you is the low rejections by LIC.

Here is the first chart which shows the percentage of claims rejected by all the insurance companies for the December 2010 quarter. (Exceptions in time period are noted in the last table which has the raw data.)

 

Rejected as a percentage of new and outstanding
Rejected as a percentage of new and outstanding

(click for larger image)

Now, when I looked at this two questions came to my mind:

1. How much difference does the relative volume make to these numbers?

2. Are these numbers skewed because of the 2 year rule?

Let’s think about the question of relative volume first. The new plus outstanding claims of Religare was 47 for that period, so even if they rejected 2 claims that would be a rejection rate of close to 5%; that they rejected 20 doesn’t exactly inspire confidence, but you can easily see why this number can’t be compared with LIC which has about 2.3 lac policies for that period.

The 2 year rule is that insurance companies can’t reject policies that are older than 2 years unless they can prove fraud. Loney – who is easily the most prolific commenter here has dug up the relevant act as well, and here is how it quotes:

Section 45 of Insurance Act, 1938 states: In accordance with Section 45 of Insurance Act, 1938, no policy of life insurance shall, after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal of insurance or any report of a medical officer, or a referee, or a friend of the insured, or in any other document leading to the
issue of the policy, was inaccurate or false, unless the insurer shows that such statements was on material factor or suppressed facts which it was material to disclose and that it was fraudulently made by the policyholder and that the policyholder knew at the time of making that the statement was false or that it suppressed facts which it was material to disclose.

So, are these rejections influenced by the fact that some insurers have been around for much longer,  and most of their claims are from policies that are older than 2 years.

So, let’s look at the data only for rejected claims that are less than 2 years old across life insurers.

Rejected Claims less than 2 years as a percentage of new and outstanding
Rejected Claims less than 2 years as a percentage of new and outstanding

The numbers don’t seem to change much, and finally let’s take a look at the ratio of claim rejections between claims that are more than 2 years old and less than 2 years old.

Proportion of Rejected Claims
Proportion of Rejected Claims

 

As expected, the claims that are less than 2 years old are rejected more often than claims that are older than 2 years, and obviously that will weigh on some of the newer insurers.

However, no matter what way I look at it LIC’s low claim rejections jump out at me. That they are expensive when compared with others makes the choice of a term plan difficult, but this is certainly something worth keeping in mind – especially for people who smoke socially or have minor health problems that can later become a cause for denial of your claim if not declared properly.

I’m enclosing the raw data in this table below, so you can use it if you want, and the sources are the same as mentioned in my earlier post, so I’m not pasting those ugly links again.

S.No. Insurer Claims O/S New Claims Claim settled Claims rej Less 2 y Greater 2 y % Rej % Rej less 2 % Rej greater 2 % Settled
1 Aegon Religare 22 27 13 20 20 0 40.82% 40.82% 0.00% 26.53%
2 Aviva India 0 532 469 63 42 21 11.84% 7.89% 3.95% 88.16%
3 Bajaj Allianz Life Ins 2,548 6,485 6,268 465 374 91 5.15% 4.14% 1.01% 69.39%
4 Bharti AXA Life Insurance 127 222 168 24 23 1 6.88% 6.59% 0.29% 48.14%
5 Birla Sunlife 173 3,113 3,029 146 142 4 4.44% 4.32% 0.12% 92.18%
6 Canara HSBC OBC Life Ins 74 72 50 11 11 0 7.53% 7.53% 0.00% 34.25%
7 DLF Pramerica 14 17 6 6 6 0 19.35% 19.35% 0.00% 19.35%
8 Future Generali 2 230 162 51 51 0 21.98% 21.98% 0.00% 69.83%
9 HDFC Life 208 1,196 1,139 40 35 5 2.85% 2.49% 0.36% 81.13%
10 ICICI Prudential (Full year) 901 15,605 14,862 554 498 56 3.36% 3.02% 0.34% 90.04%
11 IDBI Fortis 70 105 75 19 19 0 10.86% 10.86% 0.00% 42.86%
12 India Life (for 31st March 2011) 0 13 7 1 1 0 7.69% 7.69% 0.00% 53.85%
13 ING Life 112 1,550 1,462 58 54 4 3.49% 3.25% 0.24% 87.97%
14 Kotak Life 411 631 627 33 27 6 3.17% 2.59% 0.58% 60.17%
15 Max New York 707 1913 1669 248 221 27 9.47% 8.44% 1.03% 63.70%
16 Met Life 206 3562 3150 98 87 11 2.60% 2.31% 0.29% 83.60%
17 Reliance Life 957 4,025 3,272 256 251 5 5.14% 5.04% 0.10% 65.68%
18 Sahara Life (Sep 2010) 281 233 156 70 65 5 13.62% 12.65% 0.97% 30.35%
19 SBI Life 685 5,745 4,622 894 484 410 13.90% 7.53% 6.38% 71.88%
20 Shriram Life (June 2010) 475 212 197 138 127 11 20.09% 18.49% 1.60% 28.68%
21 Star Union Daichi 22 304 218 4 4 0 1.23% 1.23% 0.00% 66.87%
22 Tata AIG 26 883 702 152 136 16 16.72% 14.96% 1.76% 77.23%
23 LIC 53,765 181,165 182,211 506 443 63 0.22% 0.19% 0.03% 77.56%

 

112 thoughts on “Comparing Term Insurance Claim Rejections”

  1. Aviva India has a better claim settlement ratio comparatively..
    I am currently banking of Aviva India’s online term plan – Aviva i-Life..

  2. Mansu,

    Thanks for the data. I would be curious to know under what circumstance the policies get rejected. One of the comments was that passive smoking detected in the blood. Would this be held as fraudelent claim if the insured does not disclose he has not smoked?
    It would be good to know what kind of investigations companies do before paying up. In the rule you have mentioned, it says any information gathered from friends relatives which point to discrepancy. So would the company be following up with friends, referrers before settling?

    1. If the policy is older than 2 years then the insurer has to prove fraud. I don’t know if someone can give a comprehensive list of fraud and it will depend a lot from one situation to another, and it’s going to be subjective. If a lot of nicotine is found in someone’s body and that guy died of lung cancer without disclosing smoking – then in such cases I guess yeah the insurer will try to find out if the person was a heavy smoker or not and they may contact the friends. But they don’t do that at the time of issuing the policy.

      Also, if someone is planning to disclose information correctly then what difference does it make what investigative procedures the insurer uses.

  3. Hello Sahil,
    I would just add some suggestions / comments from my end I agree that Aviva provides cheapest online term plan but have you checked their claim settlement ratio for previous years also its Balance Sheet has huge accumulated losses which have been carried forward from years on years anyways dont go by my words you can check it for yourself and give your feedback…………..

    Also i have recently taken ICICI Prudential – I protect online term plan and it is 100 % online except the medicals also ICICI is no 1 in Pvt Insurers towards claim settlement ratio.

  4. good work manshu. i love to return to your site again and again. i opted for aviva online term plan and found them better than metlife and icipru. aviva all doc also submitted online by me. while the other two comp one is needed to visit the branch and face the brazen staff- they make you feel so awkward as you took policy online. most of the person will bear this behaviour but now no more. aviva is the fresh option and for me it worked good. i hope it’ll continvue to be the best for me in next 35 years 🙂 from sahil – writing from a mobile

  5. Hello Everyone,

    I want to know if someone buy a online term plan from a private insurer and he move out of India after some time to work can his family members claim for his insurance in case he or she dies outside India.

    1. Hello Chandra Shekhar,

      Please be informed yes Online Term Plan also cover death occured outside India provided the nominee complete all the formalities in India like buying the policy, submitting the claim apart from Original Policy most importantly the Death Certificate from the competent local authority have to be obtained from the place where the death have occured i hope i have responded to you query.

      1. Hello Rajesh – I’ll be moving out of india for couple of years (for work). If i buy online term policy say with ICICI pru, will I be covered during my stay outside of india?

        Thanks,
        Sumeet

  6. Hello Everyone,

    I have recently planned to take IProtect Plan (OPtion 1) from ICICI Prudential Pvt Ltd S.A. 30 Lakhs for a term of 30 Years i have a feeling if you buy insurance policy from any insurance company & if your policy is more then 3 years Old & you have paid all premium on time then 99 % your nominee will recd the claim smoothly also in case of early claims (less then 3 years Old) if it is natural death then 99 % chances your claim will be rejected please correct if i have a wrong feeling.

    Thanks in Advance – Rajesh Varma

    1. Hi Rajesh,

      Acc to the law – insurance companies have to prove that the claimant has engaged in fraud if the premium have been paid for more than 2 years, so that’s why you see that the rejection rate is so less for claims older than 2 years.

      And the figure also show that the rejection rate is better than 99% even if the policy were less than 2 years old.

  7. yes im already subscribed to daily mail…!

    I will update this forum once I have actual hands on experience dealing with these insurance companies….i am going to do a field resarch on this subject once in India.

    hope that will be more informative to me as well as others.

    takecare.

      1. Dear Manshu,

        An update: (from Kuwait)
        July 2011 – tried emailing Icici prudential Life Insurance for Term Insurance and they replied saying that their Financial Service Consultant (FSC) will contact me shortly and asked me for my contact details.

        August 2011- I send a reminder to Icici and they respond in the same lines that our Financial Service Consultant (FSC) will contact me shortly.

        as of today no one has contacted me from Icici.

        However, I was contacted by one of the ICICI prudential Business partner who happened to be here in kuwait for some campaign, but he was not at all interested nor was offering term insurance plans, they are onlyinterested in other products like ULIPs.

        Now, I have identified Metlife, kuwait for Term insurance and I need to clarify some concerns before jumping in:
        1) if I take insuranec with metlife in Kuwait and later get back to India can this insurance be legalized or can the claim be processed in India?
        2) will this be under the preview of Insurance Ombudsman in India.
        3) it is very likely that in the vent of my death, my familiy will be in India and they will have to process the claim from india.

        any way I will put forward this questions to the agent, but would like to seek your advise too.

        Regards,
        Dan

        1. Dan,

          Looks like you had to jump through a lot of hoops to get insurance, and the process wasn’t as smooth as it should be – that’s really bad to hear. I’m afraid that I don’t have any inputs on these questions right now. I will research this a little bit and see if I can find some answers to these but this is the first time I’ve seen these questions and I don’t know anything about it.

          Regards,

  8. Dear Manshu,
    Thisis the first time I am into reading any blog and I was really impressed by the way how this blog is managed and also all the comments. Please consider my ignorance as a reason for asking such a question in this forum.
    I would like to see more discussions on the subject as time goes by.
    Good luck for your work.
    Regards,
    Dan

    1. Dear Dan,

      Thank you very much for your kind words, they are much appreciated! The readers and discussions they generate here are phenomenal, and as you read more you will see that a lot of content is reader driven, both in terms of ideas, and in terms of input to posts too. In fact, some readers like Loney, Shiv, and Gurpreet who have subscribed to posts answer questions faster, and a lot more comprehensively than even I do!

      Welcome, and I hope you subscribe to the free daily email.

  9. Manshu,
    Thanks for the informative post.

    I am 34 yrs old male, diabetic and have Cholestrol. what is your advise on Term Insurance.
    Will LIC and other pvt companies increase their premium due to the above health conditions of mine…i am looking for a 30 yrs term and coverage of 1 Cr. please advise.
    Thanks,
    Dan

    1. Dan, I’m afraid I’m not knowledgeable enough to answer your question, and give you any recommendation. I hardly ever engage in giving out personal advice in this blog because I’m not a professional, and may not be able to give you the best solution for your situation.

  10. Hey Man! First of all thanks a ton for the excellent info. More importantly, fantastic way of reporting the numbers that make it so easy to see the big picture. I am certainly benefited by your post as well as from some of the readers’ comments. I had never thought of 2 TI’s until now and it was an eye opener (though it looks like it’s debatable, but I hadn’t thought about it at all). Well done!

  11. Hi, Thanks for the information. Good to know that LIC has good track record. I have LIC policy but apart from that I feel need to have health insurance policy for my family members. After doing some research online, i have decided to go with Max Bupa’s Family floater plan http://www.maxbupa.com/ForyouyourFamily/Heartbeat/familyfloater.aspx
    Would be grateful if you provide some claim settlement information on medical insurance in India. This would help us while choosing health plans.

    1. Hi Preethi – No one has asked this question before, and I don’t even know if this kind of information is available, but I’ll try searching for it. May I ask you what led you to select Max Bupa? Just curious about it.

  12. Very Useful info, your analysis and readers comments have helped me buy my second policy.

    thanks
    Santosh

    1. Thanks for your comment Santosh – OM attracts some amazing readers, and the post is always enhanced by the discussion that we have here.

  13. Hi everybody,
    1. Don’t Try to Buy the cheapest, No Medical, easy to Buy policy.
    2. After you paying Premium for decades, your family will be denied the the Benifit on flimsy grounds.
    3. Even if you don’t smoke, Passive smoking can lead to detection of smoking in blood even after 2 years of such incident and can be a reaon for a Company to deny you the benifits.
    4. Buying financial products is becoming very risky affair and these are long term commitments, that you buy probably once in life..and can’t afford to regret later.
    5.I know of Private companies rejecting claims on absolutely flimsy grounds.

    Take Care !!

    1. Hi Manoj – thanks for your thoughts – any examples of a flimsy reason? I’m really curious to know that, and I’m sure a lot of other folks are too.

  14. good work.
    perhaps we need to wait for few years before we can decide the second online insurer for proper data as many of online insurers are new players in the field.

    I request the author to work on health insurance which is equally important in financial planning as life insurance . Rising health care costs put lot of stress on one s financial health if a member of the family is admitted.

    can you please tell me about a health insurance that pays for out patient charges , consultation and investigations as well. I tried searching but could not find one.

    Thanks a lot .

    1. I’ll try to see if I can find data about health insurance. It has taken a big piece of research from a reader to get me started on life insurance, so frankly I don’t expect health to happen any time soon.

    2. Ask your neighbors who insuers them. This would be a good place to start, as they must have insurance. Also, if you just bought the property, ask the sellers who their insurance was through.Good luck!

    1. Dec 2010 quarter, except for 3 which I couldn’t find. if you see the table in case of exceptions the time period is listed against them.

  15. Hi,

    I think you have done a great job with the data. I guess the normally advised 2 Term policy thumb rule (6-7 times of annual income, 50% in LIC Term Plan + 50% in some online Term plan) seems good from above data.

    Maybe in another 3-4 years data will be more robust. As you rightly pointed out, on small volume, check rejection % doesnt prove conclusive. Over the next 4-5 years you can take a call on some of the players who are currently new. Anyways in 4-5 years time we would need to take more Term Insurance as annual income would go up so this data will be useful later on as well.

  16. Incidentally if you look at group insurance death claim ratios everyone has the same %s. I suppose when it comes to a corporate setup a insurer thinks it works out cheaper to pay out the claim for a few employees than risk losing the business of the entire office. After all the chances of several employees dieing at the same time is low in one year (usual term for GTIs). Once could always set a higher premium the next year!

      1. Yes. Group TIs are renewable each year and the insurer may change. An independent policy for people in corporate setup is a obviously must.

  17. “However, no matter what way I look at it LIC’s low claim rejections jump out at me. That they are expensive when compared with others makes the choice of a term plan difficult, but this is certainly something worth keeping in mind – especially for people who smoke socially or have minor health problems that can later become a cause for denial of your claim if not declared properly.”

    Awesome. People who say no force on earth can reject your claim if you are honest upfront are not necessarily right. I spent a lot of time debating what TI to take and finally settled on one LIC Amulay Jeevan

    Since I am in my mid-30s slightly overweight and have BP splitting polices will turn out expensive for me
    http://www.themoneyquest.com/2010/01/split-term-life-insurance-plan-policy.html

    Given these numbers I asked why split? one lic policy seems better than 2 with one of them lic. My nominee stands a better change of being paid.

    I think many bloggers go on and on about splitting policies with no clue of how the claim process and work the complications that arise.

    You dont buy Ti for yourself. You buy it for others. Things like will your spouse give up if there is initial rejection do they have the education/support to go to ombudsmen etc must be taken into account.
    One size doest fit all. TI advice depends on age and health besides net worth

    1. In my earlier post that was something I stated as well – that one of the factors in selecting LIC was that we knew the agent fairly well.

      However, as you say yourself – one size doesn’t fit all, and someone who is 22 hasn’t smoked ever and has no other health problems may not benefit from paying more for a policy.

      Also, I’m curious to know under what conditions taking 2 policies from different insurers become more expensive? Did you see any patterns in this?

      1. It is unlikely a 22 year will have a TI unless he is pretty financially literate. Also if he is unmarried and not a parent and not seen sudden death of a young person he will have no idea of how important hassle free claim settlement is. I will recommend private TIs only to those who cannot afford LIC policies and who are pretty young. they could take a second LIC polcity later when their responsibilities increase.

        Paying more for a policy is for peace of mind about settlement. Age has little to do with it. I agree affordability and age related maturity has a lot to do with it.

        The money quest lisnk I sent has a detailed analysis. Age, smoking and health related loading will only make two policies more. Difficult to analyse this as loading structures may be different from company to company.

        1. I know a few people who took out policies at that age or may be they were 23 or 24 at that time. I mean there are a lot of finance MBAs and CAs that graduate every year who are responsible for their parents so – minority yes, but not very unlikely.

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