Why is the Solvency Ratio an important factor in Term Insurance?

Term insurance provides financial security to your loved ones in case of an unforeseen event. Thus, while choosing an insurer, you should ensure that the company is reputable, reliable, and will be able to provide financial support to your family members in emergencies. Apart from the Claim Settlement Ratio (CSR), you should also check the solvency ratio of the company while buying the best term plan.

Read more
Get ₹1 Cr. Life Cover at just ₹449/month*
No medical checkup required
Save more with upto 10% discount
Covers COVID-19
Tax Benefit
Upto Rs. 46800
Life Cover Till Age
99 Years
8 Lakh+
Happy Customers
*Tax benefit is subject to changes in tax laws. *Standard T&C Apply
** Discount is offered by the insurance company as approved by IRDAI for the product under File & Use guidelines
Get ₹1 Cr. Life Cover at just ₹449/month*
No medical checkup required
Save more with upto 10% discount
Covers COVID-19
+91
View plans
Please wait. We Are Processing..
Get Updates on WhatsApp
By clicking on "View plans" you agree to our Privacy Policy and Terms of use

What is a Solvency Ratio? 

The Solvency Ratio is the cash flow of the insurance company and its liabilities. Simply put, it helps you know whether or not the insurer has sufficient funds to manage its long-term and short-term liabilities. If a company has a low solvency ratio, then it is more at the risk of not fulfilling its debt obligations and default payments. On the other hand, a high solvency ratio means that the company has sufficient funds to manage its financial requirements. 

So, by checking the solvency ratio, the financial position of companies offering term plans becomes clear. A high solvency ratio is generally considered an indicator of reliability. 

How To Calculate the Solvency Ratio? 

The formula of calculating solvency ratio is: 

Solvency Ratio = [Net Income + Depreciation]/ Liabilities 

This formula measures the cash flow of the company in comparison to the sum that it owes as life cover. 

Why Solvency Ratio is Important in Term Insurance? 

You buy a term plan to secure the future of your family financially. In term insurance, you agree to pay the premium amounts and the company provides a life cover to the nominee in case of your unfortunate death. 

But insurance companies receive multiple claims from their clients on a regular basis. In order to process these claims and pay the financial coverage to the nominees, the insurer requires to be financially secured and have sufficient funds. 

What if the insurance company becomes insolvent? In that case, they might not be able to pay you the sum assured and your loved ones might face financial difficulty in case of an unforeseen demise. Overall, it helps you know how good the financial strength of your company is. 

IRDAI Say on Solvency Ratio

As per the guidelines of IRDAI, the minimum solvency ratio of any insurance company should be at least 1.5. The required value is 150% in terms of solvency margin. 

Solvency margin is the additional capital the insurers should hold over and above the number of claims they are likely to experience. It is a type of financial backup in risky situations, helping the company to settle all claims. 

Wrapping It Up!

A term insurance plan is considered of no use if the beneficiary is not able to receive the death payout or if the payout gets delayed for several years or months. While the solvency ratio doesn’t offer any guarantee of the insurer’s future performance but definitely is an important indicator of its existing financial strength. 

So, if you are looking out for the best insurance company, always check the solvency ratio of a company to make a wise decision.

Types of Term Plans


Term insurance articles

Recent Articles
Popular Articles
Term Insurance - A Gift of Lifelong Protection for Your Sister this Rakhi

05 Aug 2022

Raksha Bandhan (Rakhi) is around the corner and if you are...
Read more
Difference Between Child Insurance and Term Insurance

04 Aug 2022

Every parent's priority is to financially protect their child's...
Read more
Gift “Term Insurance” to Your Wife This Karwachauth

04 Aug 2022

Every year, the fast of Karwa Chauth by your wife creates an...
Read more
Critical Illnesses Covered Under ICICI Term Insurance

26 Jul 2022

ICICI Term Insurance plans help secure the financial future of...
Read more
1.5 Crore Term Insurance Plan

26 Jul 2022

Raghav is a 30 years old healthy IT employee who has two...
Read more
Term Insurance Calculator - Calculate your Term Insurance Premium Online
Term Insurance Calculator Term insurance premium calculator is an effective and easy way to calculate the premium...
Read more
Term Plan with Return of Premium - TROP 2022 | Policybazaar
Term Insurance is a simple life insurance plan that provides financial coverage in the form of a life cover for a...
Read more
2 Crore Term Insurance Plan
The pandemic has surely generated a global panic and emphasised the importance of financial planning that would...
Read more
LIC Term Insurance 1 Crore
If you have a LIC term insurance 1 Crore handy, you can cherish all your happy moments as you have made a fine...
Read more
Types of Deaths Covered and Not Covered by Term Insurance
Types of Deaths Covered and Not Covered by Term Insurance When it comes to securing the future of your loved ones or...
Read more

top
View Plans
Close
Download the Policybazaar app
to manage all your insurance needs.
INSTALL