How to choose term insurance

• Claim Settlement Ratio for Life Insurance Companies for 2010-11
  
  Introduction
  Naresh Malhotra is a 30 year old marketing executive. He is on the lookout for a pure term insurance plan for a cover of Rs. 50 lakhs for a period of 20 years. He is in a quandary over which company to select for purchasing a term insurance plan. Term insuranceplans are also popularly known as 'protection plans'. These plans provide risk cover for loss of income, financial liabilities (home loan and other loans), financial responsibilities (children's education, marriage etc.) against untimely death of the family bread earner.
  
  
  Naresh has done some research on different term insurance plans available in the market. He is in a dilemma on two fronts.
  1) Should I go for lower premium???Naresh is quite surprised by the amount of variance (difference) in the premium charged for term plans (with same features) by different companies.
  On one hand there is LIC's Amulya Jeevan Term Plan that charges Rs. 12,850 for a 30 year old person for a cover of Rs. 50 lakhs for a term of 20 years.
  On the other hand we have Aegon Religare's iTerm Plan that charges Rs. 4302 for the same 30 year old person for a same cover of Rs. 50 lakhs for a same term of 20 years.
  So for a term plan with same features, the premium charged by LIC is a whopping 3 times more than the premium charged by Aegon Religare!!!
  2) Should I look at high claim settlement ratio (CSR)??? At the same time Naresh had a look at the Claim Settlement Ratio of life insurance companies for the year 2010-11. LIC with 97.03% CSR is way ahead of Aegon Religare's 52.31% CSR and the entire life insurance industry.
  Claim settlement ratio (CSR) refers to the number of claims settled by the insurance company out of every 100 claim requests received by the company. LIC's claim settlement ratio for the year 2010-11 was 97.03%, which in simple terms means out of every 100 claims LIC received during the year 2010-11, it paid 97 claims. This does not mean the remaining 3% claims were rejected. Some claims might be still under consideration, some inquiry pending while some may have been rejected for various reasons.
  
  In a term plan, claim settlement ratio is an important indicator of customer service, which needs to be given little more precedence over other aspects, while selecting a term insurance plan. The reason being – it is important to ensure that your beneficiaries do not face much problems in receiving the claim in case of your unfortunate demise.
  
  Low premium Vs. High claim settlement ratio dilemma!!!
  While selecting a term plan, Naresh is in a fix whether he should give more importance to the lower premium charged for online term plans by private insurers or give more importance to the high claim settlement ratio maintained by LIC year after year. Naresh is unable to decide. Like Naresh there are lot of other people who are caught between low premium and high claim settlement ratio and are unable to decide whom should they give preference over the other. In this article we try to present a comparison of the claim settlement ratio of insurance companies (for the years 2009-2010 and 2010-2011) along with the premium charged by these companies for their term plans. We sincerely hope that to some extent this article helps people like Naresh and others decide which term plan they should go for.
  
  Please note: When choosing a term plan, while claim settlement ratio and premium charged are two very important aspects, they are not the only ones that matter. Some other equally important aspects that need consideration are the person's (need) requirement, features of the plan, customer service of the company etc.
  
  In the below table let us look at the comparison of claim settlement ratio for life insurance companies for the year 2009-10 and 2010-11 and the premiums charged by these companies for their term plans.
  
  Insurer Claim Settlement Claim Settlement Term Plan
  Premium charge
  Ratio 2010-11 Ratio 2009-10
  LIC 97.03 96.54 Amulya Jeevan 12,850**
  HDFC Life 95.41 91.14 Click2Protect 5,625
  Birla Sunlife 94.66 89.09 Protector Plus 7,721
  ICICI Prudential 94.61 90.17 iCare 6,783
  ING Vysya 90.49 89.30 ING Term Life 12,265
  Kotak Life 89.30 86.97 ePreferred 5,487
  Bajaj Allianz 88.69 88.19 New Risk Care II
  Bharti AXA 87.17 77.8 iProtect 4302
  Metlife 85.43 82.54 MetProtect 5,294
  Aviva 84.15 87.11 iLife 4,436
  SBI Life 82.24 83.27 Smart Shield 7956
  BOBIndiaFirst 82.01 53.85 AnyTime 6162
  TATA AIG 81.93 78.17
  Reliance Life 81.36 89.07
  

Star Union Daichi 80.69 58.33
MaxNew YorkLife 77.96 65.51
Canara HSBC 71.02 38.71
IDBI Federal 64.92 49.52
Shriram Life 55.69 39.54
Sahara 53.23 63.06
Aegon Religare 52.3148 iTerm Plan 4302
DLF Pramerica 51.2240
Future Generali 50.5238.85