Published in Mint on Sep 06 2016, Written by Abhishek Bondia
What is covered in borrower’s insurance? I have read that it should cover accidents, critical illness, death and loss of job.What are the Insurance Regulatory and Development Authority of India (IRDAI) norms for this? If a bank grants home loan to a salaried person, and a one-time premium is paid for insuring the entire loan amount (assuming there is a tie-up between the bank and the insurance company), who will pay the claim if coverage is taken only for death ?
Borrower’s insurance is not a specified product. However, it is possible to take insurance on one’s life or asset and assign the benefits to a financial institution. This is loosely referred to as borrower’s insurance.
It is not prescribed that such an insurance must have accident, death, critical illness and loss of job coverage. Many insurers bundled these covers. As such, Irdai does not regulate or prescribe ‘borrower insurance’ separately.
The onus of taking a comprehensive cover is on the insured. The products offered by various financial institutions vary considerably. I recommend you get an independent assessment of your insurance needs from a risk expert, rather than relying on what is being sold by financing institutions.
For example, in the case of a home loan it is highly recommended to insure the home itself against natural calamities. This may or may not be sold by the financial institution as it a low-premium size insurance. Irdai does not make it mandatory to buy any insurance for loan purposes.
What is claim settlement ratio? How does it help in choosing a life insurance policy?
Insurers use several different definitions of claims settlement ratios. The most relevant is the proportion of claims settled by an insurer out of the total number of claims decisions taken. This ratio is a metric to measure an insurer’s reliability of claims settlement, because an insurer with a high-claims settlement ratio would have rejected fewer claims.
This ratio is an important consideration because claims payment is the main reason for buying insurance. Consider insurers with over 90% claim settlement ratio. You can get these numbers from Insurance Regulatory and Development Authority of India’s annual reports or from the public disclosures on the insurer’s website.