A solvency ratio is a metric that people consider to identify and evaluate the ability of an insurance company in meeting all their financial debts and obligations towards their clients. This solvency ratio of life insurance companies usually indicates how capable and competent that company is in settling all its claims. You must always note that a low solvency ratio is always an indication that the insurance company can make defaults in making the claim settlement.
Hence, it is always important that you buy the best life insurance plan from the company that has the best ratio for solvency to reduce or eliminate the chances of claim payment defaults.
As the solvency ratio is such a significant indicator in determining the right insurance provider, IRDAI (Insurance Regulatory and Development Authority) has made it compulsory for all the insurance companies to have a minimum solvency ratio of 1.5.
A life insurance company that has a high solvency ratio is financially steady and hence, more outfitted to settle all your insurance claims. Hence, you must note that the solvency of an insurance providing company is directly proportional to the company's capacity to meet its financial obligations.
Therefore, by analysing the solvency ratio of the chosen insurance providing company, you can increase the possibility of your claims being compensated even before you buy the term insurance policy.