life insurance: which insurance companies have the greatest claims-paying capacity in India? To find

When you purchase a life insurance policy, you enter into a contract with the insurer that you must pay regular premiums so that your beneficiaries can report and obtain financial assistance in the event of an untimely death. However, for the insurer to be able to offer you this financial protection, the company must be financially strong enough to pay you when you make a life insurance claim.

To find out if the insurer is financially sound, one must check the solvency ratio of the insurance company as it is an essential thing to consider before taking out insurance.

The solvency ratio defines how good or bad the financial situation of an insurance company is in relation to defined solvency standards.

How is the solvency ratio calculated?

According to Irdai guidelines, all companies are required to maintain a solvency ratio of 150% to minimize the risk of bankruptcy. The solvency ratio helps to determine if the company has sufficient financial reserve to settle all claims in extreme situations. It is therefore a good indicator of an insurance company’s financial capacity to meet its short- and long-term commitments.

The solvency margin is calculated by comparing a company’s obligations to its current assets. Simply put, the solvency ratio is calculated by dividing a company’s after-tax operating profit by its debts.

Solvency Ratio = (Net Income + Depreciation)/Liabilities

SOLVENCY RATIO OF LIFE INSURERS (FY 2020-21)

Source: Irdai 2020-21 Annual Report

Why the solvency ratio is important

The solvency ratio is one of the various important factors to consider when purchasing an insurance policy.

“Insurers regularly receive hundreds of claims from their customers. To process all these claims and pay the monetary benefit to the beneficiaries, the company must be financially stable and have sufficient funds. The solvency ratio is a simple indicator to know whether good or bad The financial strength of an insurer is An insurer with a high solvency ratio is more likely to meet its commitment to pay your beneficiary the sum insured in the event of death,” says the Aditya Birla website. Capital.

“By looking at a potential insurer’s solvency ratio, you can increase the likelihood that your claims will be paid before you even buy the life insurance policy. Additionally, an insurance company’s solvency ratio can be the crucial factor that helps you determine which life insurance plan is a superior option,” Canara HSBC OBC Life Insurance said on its website.

This ratio is available on the website of each insurer. Make sure to finalize your insurance company after checking the solvency ratio.

Kristan F. Talley