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. I need an insurance when my untimely death would create a financial burden on my family. If a private insurance company refuses to cover me beyond the age of 70-75, what is wrong in that ?? Why do I need an insurance cover at around an age when I’m quite near to death and dont have any financial liability ?? Insurance is required when there are financial liabilities on me like home loan, car loan, child education/marriage etc. If the liabilities are there on me at the age of 75, then I did not actually plan in a correct manner throughout my life.

    Nothing is free in this world except things which God has given us. I dont think 99% people need life insurance cover to be there beyond an age of 65 years. If a company like LIC is giving life cover till the age of 100 in any of its plan, then it is assuming that the company will eventually have to pay the claim to approximately 9999 people out of 10000 covered. Then, if LIC’s actuaries are wise and I’m quite sure they are, they will definitely add the cost of paying all these claims in my insurance premium. So this way I’m paying that extra cost throughout my life which the company is paying back to my family on my death.

    Nobody here is against LIC. But the point is Term plans are considered as the best plans for one to get insured probably because they provide value for money as far as insurance is concerned. For return on investment, there are various other things which provide better returns as compared to whole life policies and it is a proven historical fact that equities give the maximum returns as far as investment is concerned.

  2. Manshu,
    Thanks, you have been an absolute sport and I agree we ought to wind up.
    However I do not want this interaction to be incorrectly considered – so guess what, I will give you the numbers hopefully by tomorrow else as soon as possible, as got to sleep to now for life’s battle tomorrow.

    I don’t blame you for asking the question of numbers as you may have been influenced by many online so called financial mags trying to make themselves popular, with this question to put down opposition.
    I will not give a response what you have in mind (half baked), but will answer your question exactly to the point, I will not disappoint you………….chuckle, chuckle -mirror on the wall, please reflect the picture of what it really is.

  3. Talking numbers all the time does not answer questions. It’s nonsense and misleading people, when term policy does not cover you after 70, assuming you have taken it in time, if taken at huge rates after 50 or 60 if earlier one lapsed, which it does.

    I am talking of complete coverage even at a age term policy is not available and securing family with financial cover, you are talking of them being in distress if there is a market crash at a late age. History has proved time and again market investment has huge risks.

    1. Alright James, I appreciate this conversation, and I think it’s for people to read these arguments and decide for themselves what to do. Thanks for your time and patience in responding to me.

  4. Why do you say in different words what I said? About the difference in premium, I said initially if people who could afford or those who invest in stock market should have an insurance cover of a whole life policy as they obviously have money.
    *Insurance is not about making money but financial protection at crucial times.
    * Financial experts, real ones always advise that you ensure you have taken adequate coverage for life, health and four months daily expenses, as money in equity markets should be that money you can afford to lose. Each time markets crash, there are numerous stories of riches to rags due to incorrect advise trotted out by so called experts.

    You may win today with the term plan, but I reiterate again which you don’t want to address, after age 50-60 what will you do?
    Leave it to god I suppose so and hope nothing goes wrong and your wonderful stock market does not crash or damn the family when your not around – let them go to the dogs, is it?

    1. Let’s talk numbers please. Say I’m 30 years old and need a cover of Rs. 25 lakhs. Being an expert, can you give me a quote for the annual premium for a whole life policy and a term policy?

  5. Manshu,
    For the last time I comment, after that write whatever you want, its your mag – you win.

    There is nothing theoretical about whole-life plans, all cos have them and around for years.

    The product’s costs and benefit returns you provided is incorrect, god knows how and where and what you do.

    I wrote that whole life type plans do not invest in stock market (as they do in institutional debt markets) – but you showed a link to a Ulips plan which is completely different.
    *They are different departments and the money is not mixed as you did the links. You showed incorrect links as you said they give 20 times life cover and all about equity linked plans to claim you were an expert. Clearly you were not aware as previous advise in columns too along the same while providing supposed expert advise.

    Who does not make money, don’t you, don’t people who go to offices, in businesses, hospitals, hotels – do you live on social service income, so your unbecoming comments of possibly some agents being directed at me was incorrect.

    Once again, you avoid the point with all sorts of statements, when the term plan ends what do you do for financial cover, with nothing pray something wrong does not go wrong. How do you say this is incorrect? this is only as…

    ..one-mint makes money from ads and needs more people to visit the site – people think as you are not from a bank or insurance company it must be un-biased and correct, only to realise years later!!!!!!!

    1. I’ll take the term plan with the max maturity, and the difference in premium (compared to any insurance that pays you back) will ensure that I come on top in 25, 30 or 35 years maturity.

  6. Manshu,
    No product was provided over around 5 days until you guys kept asking for it.

    Once again, LIC debt market plans are not invested in equity markets, you are showing links of something else to prove incorrect advise is correct as most people will not check.
    What you refer to as debt market is something else.
    Due to mags like one mint and various others with so called experts criticizing LIC unduly and without really knowing, in about a month and half they will be collecting service tax instead of covering them, currently at 12.36% – now talk about returns when paying taxes on your bond payments.
    one mint is being made popular with incorrect advise and mixing up things and confusing peoples minds, showing themselves to be experts, which they are not to make huge money from the advertisements.

    1. It is a theoretical argument if you can’t show a product that can help achieve what you are saying. That’s why the request to show a product.

      When you showed a product, I gave the link for that product’s costs and benefit returns. How is that misleading?

      You wrote that LIC doesn’t invest in the stock market, and I showed you a link in LIC’s website which is its disclosure document that shows how big of an investor it is in the stock market.

      How is that misleading?

      You talk about me criticizing LIC but if you go back to my own post you will see that I write about their term plan favorably and in other posts I have also mentioned that I have a term plan from them.

  7. The advise provided in these columns via the advise is crap, without a real understanding and just trying to make the forum popular so you can make money – from others losses.
    I never said you cannot combine a term insurance and investments in tax free bonds. I will not be responding again as your advise is muddled and your forum misleading people.

    I advocated a idea not a must should and your later comments are trying to confuse the issue as incorrect advise provided initially by one-mint.

    1. Yes obviously, people who are writing about products and NOT selling anything to make fat commissions on products are the ones giving crap advice leading people to losses.

  8. Manshu,
    You responded twice above and I did not see the 2nd response at 8:23 pm, indeed incorrect.
    I have no idea where you got the Jeevan anand rates you mention for 1 lakh, I checked for 20 yrs it is incorrect and around 5800/=
    I mentioned term plan rates.

    You are completely confused with patches of incorrect info. – even Money control and many others do the same claiming to provide financial advise, alas completely incorrect.
    Jeevan Anand does Not invest in the equity markets NOR does it give 20 times cover, those are Ulip Plans which invest in equities.
    I never asked anyone to invest in insurance, please read again a bit slowly – Insurance is not about investment, it is about financial protection and wholelife and long term plans give returns in order to increase the life cover. Are you suggesting people should only invest in the stock market to make money and then their families go to roads when they lose all, the idea of sharks waiting to takeover their properties for cheap rates.

    There was no diatribe and you should not say so if you provided incorrect advise previously. i do not think I will comment again here if this is the case. In fact earlier I have found ludicrous advise to people asking them to take high life cover and ensure very good returns – How can that be possible when higher life cover means more mortality charges, hencel ower returns?

    1. This is the page for Jeevan Anand that you spoke about right?

      http://www.licindia.in/endowment_005_illustration.htm

      What is the premium here for a 35 year old for Rs. 1 lakh?
      Illustration 1
      Age at entry: 35 years
      Sum Assured: Rs.1,00,000/-
      Premium Paying term: 25 years
      Mode of premium payment: Yearly
      Annual Premium: Rs. 4,535 /-

      How much do you think costs for a term plan for Rs. 1 lakh cover?

      And I can’t believe I have to argue about LIC not investing in the stock market. It has huge stakes in Infy, ONGC, Tata Steel and what not.

      And I never even once wrote about investing in equities here, I said you can invest in debt and mimic the variable returns (variable mind you not guranteed) and then you said that individuals can’t invest in the debt market. For which I gave you a few examples where individuals can

  9. Manshu,
    We indeed find many of the so called financial forums really humorous as they provide advise by researching and then speculating. Then a few of them clear up for each other, a case of the blind leading the blind in the many online forums and columns.

    LIC DOES NOT INVEST IN THE STOCK MARKET, THOSE ARE ULIPS AND I NEVER ADVOCATED THEM AND NEVER WILL, GO INVEST DIRECTLY IN THE EQUITY MARKETS – INSURANCE IS ABOUT INSURANCE OR FINANCIAL PROTECTION.
    The example I gave is where LIC invests in Debt markets, which you guys as individuals cannot – tell me the last time the Debt markets really crashed, apart from minor bruises when the economy went down fully before bouncing back with higher returns.

    1. I find it ridiculous to have to deal with insurance agents who peddle crap on OneMint and can’t form a coherent argument but there is no escape from that.

      LIC in fact has huge equity investments that will affect its returns as you can see from their L12 statement. Link:

      http://www.licindia.in/publicdiscloser/2011-12/122011/L-11,_L-12,_L-13,_L-14.pdf

      As individuals, we can invest in debt market. Examples:

      1. NCDs.
      2. Tax Free Bonds
      3. 80CCF Bonds
      4. FMPs
      5. Short term debt funds.

      And this is precisely my point, that you can combine a term insurance and investments in tax free bonds or NCDs and get a higher cover and match returns (if not exceed) from this very whole life plan that you are talking about.

  10. Manshu/ Manoj,
    Before responding to your question, I would once again like to reiterate that Term policies are Not cheap (examples below) as advertisements show lower age rates without the numerous exclusions, they are ideally meant to cover loans.
    *Example of LIC below for Rs 25 lacs for a 20 year term as they pay when the time comes, I find most private cos cheap Term plans not fruitful as high rejection at time of claims as they spend a lot to get business and many could be said to be a piece of waste paper.
    Age 30 yrs, it is Rs. 6425/=
    Age 35 it is RS. 8500/=
    Age 40 it is Rs. 12025/= (if you took a 10 yr term then this is the rate now)
    Age 50 it is Rs. 27250/= (if you took a 20 yr term then this is the rate now)
    Age 55 you get only a 15 yr term & it is Rs. 34850/=
    Age 60 you get only a max 10 yr term & it is Rs. 44200/=
    If your previous term insurance period ended a few days after age 60, you do not get term insurance.
    Loans too are not provided beyond age 65 or 70 if a home loan and has to end here.

    Term policy is popular in the West, where despite their huge earnings they always have huge debts due to their lifestyle. So we think it’s good for us too and supposed experts with no real idea of finance advise this as they go on on about the money in the equity market (If it was that good continously why do the markets crash regularly and why is the PM himself asking fund managers of MF’s to buck up). Before being too happy that we are thrift and Westerners are not, note that Westerners do not like to save as their banks hardly pay them anything, as loans too are very cheap (eg; UK secured home loan from Hsbc is 2.64% and unsecured personal loan is 6.2% – there are others giving at slightly cheaper rates too – in India it is 3 times as much for both which is why banks pay higher interest rates and our economies are struggling as businesses cant take loans).

    Whole Life policy:
    About the whole life policy an example is LIC’s Jeevan Anand where the premium can be from 10 yrs min upwards to around 35 yrs, depending on age. The life cover on this keeps increasing each year.
    *Though the policy matures say after 20 years as selected by you and you receive your money with bonuses, the Sum Assured continues again till age 100, and no medical is necessary at the vesting age you selected or anytime thereafter.
    So if you can afford it then this type is best, you never know when the market crashes.
    I hear wonderful talk at many offices of them dreaming how they have invested in MF’s or shares and will make money when you don’t pay the fund managers and crib – why would he take best decisions for you and really perform? If you really want to make money, learn to study the equity charts and invest directly in the NSE or BSE or gold, curreny et al; and yes before that cover your family as you never know even then…..!!!

    1. Do you understand that even LIC invests in the stock market and if the market is down then their returns will get affected or do you think that they will somehow magically generate returns on these whole life policies that you talk about?

    2. The Jeevan Anand page shows that you have to pay an annual premium of Rs. 4,535 for a cover of Rs. 1 lakhs for someone who is 35 years, so in your example that you’ve taken above, for Rs. 8500 odd you get 20 times that cover?

      Further, the guaranteed benefit is the one lakh and the rest is all variable that largely depends on market returns my friend. You keep harping on the fact that this is lower cost than a term plan, but for anyone who can do a little Maths, they can see that they can buy a term plan, and save the remainder of the money, invest in some tax free bonds, or fixed deposits and generate a better return. Don’t even need to go to equities.

      And this whole diatribe against equities and suggesting that since equities crash you should “invest” in insurance ignores the fact that LIC goes and buys equities too, that too PSU stocks that no one else is willing to buy. If equities do badly, then these whole plans will also do badly. They don’t have a magic bullet.

  11. A point to note is that Term insurance is not necessarily the cheapest and best option. Many so called experts keep harping on this and I think people are not looking to see if it is incorrect.

    First keep in mind that insurance is meant to provide financial protection to families.
    So if a person can afford it a traditional wholelife plan is best. This is so as Term insurance is very costly and not at all cheap as age increases and is not given after age 65, though that fact is it is normally not given after age 50 by most insurance companies unless the person has exceptionally good health.
    What is the use of a supposedly cheap plan when it does not cover you when you need it the most as most people after 60 stop earning apart fro mthe fact these companies do not pay claim while looking for reasons to decline?
    On the other hand a good wholelife plan (from a good insurer) with premium holiday can cover you till age 100; the best thing is its cover keeps increasing year by year and you dont need to pay yearly forever like term plans.
    Term plans are meant to cover loans etc and not suited to those who invest in the stock market?

    One point to clear up though is that the settlement percentage is not necessarily due to rejection, but as many people do not come forward to claim, possibly as unaware of insurance policy. This is more so with LIC who has a huge base of customers.

      1. Thanks to everyone who has provided insights here. I would like to know from James which “Whole Life Policy” are you talking about ? Please provide some details. Regards.

  12. Hi Manshu – great post. Thanks for your efforts.

    by any chance – do you have latest consolidated claims settlement data for the companies – the one in this post is 15 months old, and it will be interesting to see how new breed of comapnies offering online insurance products have fared. Most new companies were 1-5 years old at the time of starting this post.

  13. I ve bought two plans online (ICICI Pru & Aviva) and thinking of buying newly launched HDFC Life.
    A query, Do one needs to notify term plan issuer while going for long term to work outside India?

  14. Hi Manshu / Group member
    Could to tel me hiden aspect in SBI Life smart performer or HDFC Standard Life plan, They are coading Higher of highest NAV,Is it tru?What are hiden things?How will adjust it if DTC will come next year?

  15. hi,
    This is an excellent article with lively comments all filled with information. I had taken a term insurance planning 4 years back and Iam surprised to see the lower premiums existing now for most insurance products. I am looking to take an additional cover and was scouting for advice on maintaining 2 TL Vs. 1 TL. After reading this blog, I have decided to go for additional cover (i.e. 2 TL). Thanks for the excellent info and keep up the good work.

    1. Thanks Neo! I think you might want to see if your insurer provides a top up policy and see what rate you’re getting that. You might just get a better deal there.

  16. Dear Manish

    If I buy 2 Term policies from 2 different companies, do my family get benefits from both the companies? Or there is some conflict?

  17. This is a great website and lots of valuable information is available here for everyone.
    I was looking at the various posts + data and a couple of things came to my mind:

    1. Everyone says that LIC claim settlement % is highest. That may be true but how many of those claims are related to whole life / endowment (which I presume forms the bulk of LIC’s business) and how many relate to pure term plans? So what are the claim settlement ratios of these companies for ONLY term plans issued?

    2. Do these percentages refer to the “number of claims” or “value of claims”. As an example: If an insurer has issued 8 policies 0f 1 lakh each and 2 policies of 10 lakh each AND the insurer rejects just one of the larger value policy claim, the claim settlement ratio would seem to be 90%. However as an amount rejected % (not sure of correct term) it will fall to around 65% I think.

    3. That leads me to my third point of claim settlement ratio for “large” claims. We should get data on how many % claims are rejected for policies > 25 lakhs (or 50 lakhs or any other appropriate number). An unscrupulous insurer could make sure that the higher in number but lower in value claims are all paid off without any murmur but would question and repudiate higher value claims which would be lower in number. This would protect his bottom line and also not unduly affect the claims payout ratio.

    I think the answers to these would be really illuminating.

  18. Hi ,

    I want to take a term plan of 50 lakhs and i am confused between Aviva and ICICI Pru and also there is a difference in premium , pls suggest

  19. dear manshu
    I settled for Aegon Religare- i term plan, and the moment I saw your wonderful job to understand the claims settlements of the insurers I withdrawn. I have to search for new insurer who will give policy after all medical tests. Please advise.
    Pani

    1. I’m afraid there is not a lot more that I can advise you on beyond this post – you have to look at the data and make a decision yourself.

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