Life insurance plays a very important role in securing your loved ones’ financial stability in case of an unfortunate event. Thus, while choosing an insurance provider, you must do so with care and after thorough research. You must ensure that your insurer is trustworthy, reputable and will be able to provide financial support to your loved ones in their hour of need.
Keeping this in mind, one of the major factors to consider is the solvency ratio of a life insurance company. Read on to find out why this ratio matters and how you can select a reliable insurance provider.

What is solvency ratio?

When a life insurance is purchased, the insurer promises to pay a predetermined amount to your nominee in case an unwanted event occurs.

Now, consider the case of natural calamities such as earthquake, flood, tsunami, and so on. As a result of such an event, the company may face more number of claims than anticipated. Here, the company’s ability to settle the claims depends on its solvency or financial capacity. Essentially, an insurer’s solvency is its financial capacity to meet its obligations.

Therefore, by taking a look at their solvency ratio, the financial position of life insurance companies becomes clear. A high ratio means the company is financially sound and it has enough capital to pay all valid claims.

How is solvency ratio calculated?

The solvency ratio formula is:

Solvency Ratio = (Net income + Depreciation) /Liabilities*

The solvency ratio formula measures the insurance company’s cash flow in comparison to the amount it owes as total life cover. The higher the assets are against the liabilities, the higher is this ratio.

Does the solvency ratio matter while buying insurance plans?

Your insurance policy is a legal contract in which you agree to pay a decided amount as premium. In return, the insurer pledges to pay the sum assured to your nominee in case of an unfortunate event.

Now if the insurer becomes insolvent, they might not be able to keep their promise of payment of the assured sum, and your family might face a financial shortfall in case of an unfortunate event.

Hence, to safeguard your family and ensure that the sum assured will be paid in the hour of need, you must look for high solvency ratio insurance providers.

IRDAI on the solvency ratio

As per the IRDAI’s mandate, the minimum solvency ratio insurance companies must maintain is 1.5 to lower risks. In terms of solvency margin, the required value is 150%.

The solvency margin is the extra capital the companies must hold over and above the claim amounts they are likely to incur. It acts as a financial backup in extreme situations, enabling the company to settle all claims.

Conclusion

The solvency ratio that life insurance companies declare every quarter reflect their ability to honor their promise of sum assured in case of an unfortunate event.

Also, to cover your family’s current and future financial needs, you need a term insurance plan. The affordable premiums allow you to buy a large coverage for your family regardless of your budget.

ICICI Prudential Life declared a solvency ratio of 216.8%1 for the FY2021, well over the IRDAI’s regulatory requirement. Moreover, our claim settlement ratio (CSR) in FY2021 was 97.9%2. This ratio also establishes our commitment to our customers and their loved ones. To ensure complete financial protection of your loved ones, you can opt for ICICI Prudential Life’s term plan, ICICI Pru iProtect Smart3. This comprehensive policy provides a life cover4 while also giving you the option to secure yourself against 34 different critical illnesses5. Moreover, you get to choose from a wide range of tenures at affordable premiums.

Hence, to ensure your family is always financially secured, it is crucial to take charge of your financial life and start investing with the right insurance provider.

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Sources:

https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo58&flag=1

1. ICICI Prudential Life | Solvency ratio for FY2021:

https://www.iciciprulife.com/content/dam/icicipru/about-us/BusinessPresentations/FY2021/Business_Presentation_Q4-FY2021.pdf

2. Consistent claim settlement ratio:

https://www.iciciprulife.com/content/dam/icicipru/about-us/BusinessPresentations/FY2021/Business_Presentation_Q4-FY2021.pdf

* The liabilities include the total life cover amount payable to its policyholders.

3. ICICI Pru iProtect Smart offers four variants namely ‘Life’, ‘Life plus’, ‘Life and health’ and ‘All in One’ with different benefits. “All in One” is one of the four variants offered under iProtect Smart. The customer can choose any one variant from the four available variants. Please refer to the product brochure for more details.

4. Life Cover is the benefit payable on death of the life assured during the policy term.

5. Accelerated Critical Illness Benefit (ACI Benefit) is optional and available under Life & Health and All in One options. This benefit is payable, on first occurrence of any of the 34 illnesses covered. Medical documents confirming diagnosis of critical illness needs to be submitted. The benefit is payable only on the fulfillment of the definition of the diagnosed critical illness. The ACI Benefit, is accelerated and not an additional benefit which means the policy will continue with the Death Benefit reduced by the extent of the ACI Benefit paid. The future premiums payable under the policy will reduce proportionately. If ACI Benefit paid is equal to the Death Benefit, the policy will terminate on payment of the ACI Benefit. To know more in detail about ACI Benefit, terms & conditions governing it, kindly refer to sales brochure. ACI Benefit term would be equal to policy term or 30 years or (75-Age at entry), whichever is lower.

ICICI Pru iProtect Smart (Non-Linked Non-Par Life Individual Pure Risk Premium Product) UIN:

105N151V06

W/II/4965/2021-22

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