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Solvency Ratio of Max Life Insurance

While you make hundreds of important decisions in life so that you meet your financial goals, there is one decision that can help resolve all your financial constraints or protect you and your family in the long run. However, not all life insurance companies are alike, as they have quite a few factors that differentiate them from each other, like their capability to settle claims if the situation ever arises, which is also known as the solvency ratio of the insurer. 

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In this article, we will understand the meaning of solvency ratio and its importance before you purchase a life insurance plan from Max Life Insurance.

What Is The Meaning Of Solvency Ratio?

Solvency Ratio of an insurance company is the measurement of its capability to meet its financial commitments and debt obligations. It provides people with an insight of the insurer’s cash flow and whether it is able to cater to the long-term and short-term liabilities of the company.

By understanding the solvency ratio of the insurer, a policyholder can assess the solvency margin of the insurer and be assured of its capital size in comparison to the risks/claims that the company has to settle. In simple words, when you trust an insurance company with a huge chunk of your earnings to pay as premium for your loved ones’ security, you must be certain about how stable the company is in terms of being able to settle the claims and pay your dependents/nominees the claim amount. Therefore, solvency ratio helps you understand the insurer’s ability to do so, in order for you to choose life insurance plans from an insurer with higher solvency ratio.

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How Is The Solvency Ratio Calculated?

The calculation of solvency ratio of an insurer is quite simple, and is derived from dividing the insurer’s operating income (post tax) by the insurer’s debt liabilities. The formula is mentioned below:

Solvency Ratio = (Net Income + Depreciation) divided by Liabilities

Higher solvency ratio means that the insurer is financially stable and can settle claims without hassle. Whereas, lower solvency ratio means that the insurer is at high risk of becoming insolvent.

Why Is It Important To Check Solvency Ratio Of Max Life Insurance?

It is important to check solvency ratio of Max Life Insurance because of the below mentioned reasons:

  1. To Check Reliability of the Insurer

    An insurance company with a low solvency ratio would imply that they are incapable of settling the claims requested by their customers. Therefore, you must not prefer buying a life insurance plan from such a company and always seek the insurers with higher solvency ratio.

  2. To Assure Family’s Financial Security

    Trusting your money with an insurer that has a higher solvency ratio means that it is less likely for the claim amount to be settled late. Checking the solvency ratio is also necessary because being a policyholder, it is important that you make sure your family doesn’t face any trouble in receiving the amount that you intended to save for their future.

  3. To Understand The Financial Stability Of The Insurer

    Solvency Ratio gives an insight of how well the insurer has maintained its financial stability, therefore, having enough to settle the claims of the customers.

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Solvency Ratio Of Max Life Insurance

The solvency ratio of Max Life Insurance for the financial year 2021-22 is 2.04. This indicates that the insurer can fulfill financial obligations and cater to claim settlements without fail, as the ideal solvency ratio for any insurer is above 1.5. The solvency ratio of Max Life Insurance for 5 consecutive years is mentioned below:

Financial Year Solvency Ratio
2017-18 2.86
2018-19 2.51
2019-20 2.19
2020-21 2.07
2021-22 2.04

Over the past 5 years, Max Life Insurance has been able to maintain their solvency ratio above 2, which means that they are reliable when it comes to claim settlement and can be trusted with the futures of your loved ones.

Things To Consider Before You Buy Life Insurance Plan

Below mentioned are a few things to consider before you buy a life insurance plan:

  • Always check the solvency ratio and claim settlement ratio of any insurer for 5 consecutive years before you buy a plan from them.

  • Keep in mind your future goals, annual income and health conditions before you buy any life insurance plan.

  • For any information or query that you may have, you can approach the customer care service for help.

Wrapping It Up!

Making sure that your loved ones are not in distress due to financial constraints is your responsibility. But at the same time, it is also important that you ensure that they receive the claim amount without hassle. Hence, solvency ratio is very important to be observed before you buy a life insurance plan from an insurer.

FAQ's

  • What constitutes a good solvency ratio?

    Ans: Acceptable solvency percentages differ by industry, but in general, a solvency ratio of less than 20% or 30% is considered financially sound. The lower the solvency ratio is of a company, the more likely it is that it will fail on its financial commitments.
  • How do I calculate the solvency ratio?

    Ans: To compute the ratio, use the following formula: Solvency Ratio = (Net Income + Depreciation) divided by Liabilities
  • What is the significance of solvency ratio?

    Ans: You may acquire enough information to be confident about a company's ability to satisfy its present and future debt commitments by carefully reviewing its financial statements and calculating the proper ratios.

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