Comparison Framework — How to Evaluate Term Plans
The points on which term plans are compared beyond the premium: the insurer's claims record and how to read a claim settlement ratio, solvency, cover and payout options, riders and premium payment options, and the features that regulation makes the same everywhere.
Beyond the premium
Two term plans with the same sum assured and term can differ in several ways besides price. Useful points of comparison include the insurer's claims record, the cover and payout options offered, the riders available and their terms, the premium payment options, and the insurer's financial strength.
No single figure tells the whole story. Each indicator answers one question, and each has limits that are easy to miss when it is quoted alone.
Reading the claims record
The claim settlement ratio is claims settled divided by claims received, multiplied by 100. IRDAI publishes insurers' claims data every year, so the figure is available for every life insurer.
The ratio has to be read with care. It can be worked out by number of claims or by amount, and the two can differ: an insurer that settles nearly all small claims but leaves a few large ones unpaid shows a high ratio by number and a lower one by amount. It also does not show why the remaining claims were rejected or are still pending. It is therefore read with the claims rejected and the basis used.
Financial strength
A term plan is a promise that may fall due decades later, so the insurer's ability to pay matters. IRDAI's solvency regulations, made under section 64VA of the Insurance Act, 1938, specify a control level of solvency of 150%. An insurer that falls below it must give IRDAI a plan to restore its margin; the legal floor is 100% of the required solvency margin.
IRDAI publishes solvency data every year. The ratio is one indicator of an insurer's ability to meet its obligations to policyholders, not a ranking of insurers.
Options inside the plan
Plans differ in the cover options they offer, such as level or increasing cover, and in payout options. The death benefit may be paid as a lump sum, as regular income, or as a combination in which part is paid at once and the rest in instalments over a period set in the policy. The choice is recorded in the policy.
Riders and premium payment options, such as regular, limited or single premium, also vary.
What does not differ
Some features are required by regulation of every insurer, so they do not distinguish one insurer from another: the 30-day free-look period, settlement of a death claim within 15 days of intimation or 45 days if investigated, interest at bank rate plus 2% for delay, and the three-year limit in section 45 of the Insurance Act, 1938.
Rules at a glance
A payout option in practice
Illustration, with assumed figures: Anand's term plan has a sum assured of ₹1 crore, and he chose the lump sum plus income option when he bought it. Under his policy, half the benefit is paid at once and the rest in equal monthly instalments over ten years.
On his death the nominee receives ₹50 lakh immediately. The other ₹50 lakh is spread over 10 × 12 = 120 months, which is ₹50,00,000 ÷ 120 = about ₹41,667 a month, before any increase or interest the policy may provide. A policy with a different option would pay the whole ₹1 crore at once.
One insurer, two claim settlement ratios (illustrative figures)
- Assumptions, for arithmetic only: in one year an insurer receives 5,000 death claims with a total amount of ₹500 crore; it settles 4,850 claims with a total amount of ₹440 crore; the rest are rejected or pending.
- Ratio by number = 4,850 ÷ 5,000 × 100 = 97%.
- Ratio by amount = ₹440 crore ÷ ₹500 crore × 100 = 88%.
- Claims not settled = 5,000 − 4,850 = 150, with an amount of ₹500 crore − ₹440 crore = ₹60 crore.
- Average size of an unsettled claim = ₹60 crore ÷ 150 = ₹40 lakh, against an average for all claims of ₹500 crore ÷ 5,000 = ₹10 lakh.
Result. The same insurer shows 97% by number and 88% by amount, because the unsettled claims are larger than average. Neither figure says why those 150 claims were not paid.
Key points
- Term plans are compared on claims record, cover and payout options, riders, premium payment options and financial strength, not on premium alone.
- Claim settlement ratio = claims settled ÷ claims received × 100.
- The ratio can be by number or by amount and does not show why claims were rejected.
- IRDAI's solvency regulations specify a control level of 150%; the legal floor is 100% of the required solvency margin.
- Free-look, claim timelines and section 45 are set by regulation and are the same for every insurer.
Common misunderstandings
- A claim settlement ratio is not a complete measure of claims service: its basis varies and it is silent on the reasons for rejection.
- The 150% figure is not the legal minimum: it is the control level, and the legal floor is 100% of the required solvency margin.
- The 30-day free-look period and the claim deadlines are not features of any one insurer: they are regulatory standards that apply to every insurer.
Questions people ask
An insurer received 5,000 death claims in a year and settled 4,850. What is its claim settlement ratio?
4,850 ÷ 5,000 × 100 = 97%. The other 3% were rejected, pending investigation or withdrawn.
What happens when an insurer's solvency falls below 150%?
It must give IRDAI a plan to restore its solvency margin. The legal floor is 100% of the required margin.
Which payout option pays part of the benefit at once and the rest monthly?
The lump sum plus income option. Which options a plan offers depends on the product, and the choice is recorded in the policy.
What this lesson relies on
- Insurance Act, 1938 — sections 45 and 64VA
- IRDAI solvency regulations and IRDAI's yearly published data on insurers' claims and solvency
- IRDAI Master Circular on Protection of Policyholders' Interests (5 September 2024)
- IRDAI Master Circular on Life Insurance Products (12 June 2024)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.