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How To Choose the Right Term Insurance Plan?
Term insurance plans are a cost-effective way to secure the financial future of your loved ones. Selecting the perfect term insurance plan isn't just a financial decision; it's about protecting your family's dreams and security. However, with several options available today, finding the right term insurance plan can be a daunting task.
To ensure you make the right choice, here is a detailed step-by-step guide on how to choose a term insurance plan. By the end of this guide, you will have a clear idea of what term plans are and what to look for when buying them. This way, you can rest assured that you are getting the right term insurance plan in India to secure the continued well-being of your loved ones in your absence.
Table of Contents
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What Is a Term Insurance Plan? -
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How do Term Plans Work? -
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How To Choose the Right Term Insurance Plan? - A Step-By-Step Guide -
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What Steps Should You Take When Choosing the Right Term Insurance Plan?
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Tips For Choosing the Right Term Insurance Plan -
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Term Insurance Terminologies - A Quick Glance -
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Frequently Asked Questions (FAQs)
What Is A Term Insurance Plan?
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A term insurance plan is a life insurance product that offers you pure risk protection against life's uncertainties. Under this plan, the policy nominee gets a death benefit payout of the sum assured amount if the policyholder dies during the policy's term.
For example, if a parent is insured under a 10-year term plan and names their child a policy nominee. It means the insurance company will pay the child a death benefit if their insured parent passes away during the 10 years the policy was in effect/active.
Lastly, basic term insurance plans do not provide any survival/maturity benefits, so if the parent survives the 10-year policy term, they will not get any cash payouts of the sum assured amount. The policy coverage will simply cease when the term plan ends unless they have opted for a term plan with a Return of Premium (ROP) feature, providing them with a maturity benefit - a return payment of all premiums paid during the policy’s term.
Popular Tata AIA Term Insurance Plans
Tata AIA
Sampoorna Raksha Supreme
A Non-Linked Non-Participating Individual Life Insurance Plan (UIN:110N160V04)
Tata AIA
SRS Vitality Protect
Solution Composition
Tata AIA SRS Vitality Protect is a term solution which includes Tata AIA Life Insurance Sampoorna Raksha Supreme, a non-linked, non-participating, individual life insurance plan (UIN: 110N160V04) and Tata AIA Vitality Protect, a non-linked, non-participating, individual health rider (UIN: 110B046V02)
How do Term Plans Work?
A term plan will provide you coverage in exchange for regular premium payments. It is essentially a contract between you and your insurance company that holds both parties accountable under the policy's terms.
Hence, term coverage will be provided as long as you (the policyholder) make your premium payments regularly and on time. The sum assured amount and premiums for a term insurance policy are decided during policy purchase and will remain the same throughout the policy's term - regardless of factors like inflation rates or your age.
The premiums will only increase when you buy a new policy (when you are older), as you will need to go through the application process again, where current age and inflation rates will be re-assessed.
How To Choose the Right Term Insurance Plan? - A Step-By-Step Guide
Picking the right term insurance plan can be overwhelming, given the number of things you must consider. To make this easy, we have provided a table based on common scenarios you can use to point you in the right direction.
Scenario |
What is the Best Term Insurance Plan? |
Why Should You Get One? |
You are the sole earner in your family |
Basic, increasing, convertible, ROP term plans, or term plans with a life stage benefit. |
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You are a salaried employee with dependent family members like children, parents, spouse, etc. |
E-term plans with regular premiums. |
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You are a self-employed individual with dependents. |
A basic or ROP term plan with a single premium payment option. |
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You have existing liabilities like loans, debt, etc. |
Basic or decreasing term insurance plans. |
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You are not the sole earner in your household but still contribute to your family’s overall income. |
A basic or ROP terms plan with your preferred payment mode depending on your annual income. |
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If you have a pre-existing condition but need to contribute or are the sole earner in your family. |
Term plan with a critical illness rider or any other relevant health rider. |
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You are a retired individual with dependents. |
Basic or decreasing term plans |
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This table is for illustrative purposes only, and any policy terms and coverage you choose to opt for must be discussed at length with your insurer before you arrive at a final decision. Please contact us if you have any inquiries about the online term plans offered at Tata AIA.
What Steps Should You Take When Choosing the Right Term Insurance Plan?
To help you make an informed decision, here are some important steps you need to take to choose the best term life insurance plan:
- Get the Right Coverage (Sum Assured)
- Determine How Long You Will Need Coverage (Policy Tenure)
- Look into Add-On Riders^ if Required
- Compare Term Plans and Insurers
- Check the Insurance Company's Claim Settlement Ratio (CSR) and Financial Health
Let us take a closer look at how you can put these steps into practice:
Get the Right Coverage (Sum Assured)
This is the most crucial step when buying the right term insurance plan. The sum assured is your death benefit. So, choosing the right amount when buying your policy is pivotal, as it cannot be changed once fixed unless you choose to upgrade your policy or buy another one.
Here are some factors you should consider when calculating how much sum assured you will need:
- Assess your degree of contribution to your family's overall annual income; if you are the sole earner, this will be your annual income.
- Account for existing liabilities like debt/loans.
- Consider any big-ticket purchases like a house, car, or education expenses that must be paid in the near future.
- Factor in your current investments and existing assets.
- Calculate your day-to-day household expenses and your average monthly/annual expenses or budget.
If you are still unsure of how much coverage your family may need, you can opt to get an increasing term plan, as these types of term insurance plans account for changing factors like inflation rates.
Determine How Long You Will Need Coverage (Policy Tenure)
Once you know how much money your family requires to maintain their current standard of living, you need to figure out how long you want the term coverage to last.
- If you are a younger individual with a growing family, opting for a term plan that offers long-term coverage is beneficial. Some plans like Tata AIA's Sampoorna Raksha Supreme can even offer coverage up to 100 years of age@.
- If you are older (over 45 years), you can choose your policy tenure based on future financial obligations that are yet to be completed. This can be anything from paying off a home loan to accounting for educational costs if you have young children.
Look Into Add-On Riders if Required
In case you wish to extend the base sum assured under your term plan, add-on riders^ can be beneficial. Some common riders most policyholders opt for are:
- Additional Cover for Death Due to Accident: For death due to an accident, your policy nominee would get an additional sum assured from this add-on on top of the death benefit under the base policy.
- Critical Illness Rider: You will get a lump sum payment upon the initial diagnosis of your illness, and how much you are paid will depend on what stage of the illness you are diagnosed at.
- Waiver of Premium: This rider waives the need to pay a policy premium in the case of physical impairments or a critical illness that can negatively affect a person's financial health.
- Return of Premium: This add-on offers a return payment of all premiums paid during the policy term on policy maturity, or this payment is offered to the nominee with the death benefit on the insured's passing.
Compare Term Plans and Insurers
To pick the best term insurance plan, you must compare different term plans and their offered quotes. This can be done on aggregator sites if you are comparing plans from different online life insurers or on the insurer's website for terms plans offered by the same company.
Comparing plans gives you a better idea of policy benefits, term plan prices, policy exclusions, available add-on riders^, and any discounts you are potentially eligible for. Also, consider looking into value-added services different insurers offer.
These can be discounts, paperless claims processes, online payment options, network hospitals, etc. These will allow you to capitalize on your base plan's benefits.
Check the Insurance Company's Claim Settlement Ratio and Financial Health
Besides comparing plans and services, the insurer's ability to settle claims and pay the death benefit is just as if not more important.
Always check the insurance company's claims settlement ratio (CSR) and solvency ratio, as these two factors are good indicators of your insurer's ability to pay the claim amount.
The Claim Settlement Ratio (CSR) is the percentage of claims settled by the insurance company against the total number of claims they have received in a financial year, while the solvency ratio indicates the company's ability to pay their outstanding amount, i.e., claim amounts or death benefits.
Tips For Choosing the Right Term Insurance Plan
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01.01.Choose insurers that offer flexible premium payment terms and payment modes to ensure that you can make your premium payments on time when you have the means to do so.
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02.Since add-ons riders^ require an extra premium payment, only opt for them if you think they are absolutely necessary, and you need that additional coverage.02.Since add-ons riders^ require an extra premium payment, only opt for them if you think they are absolutely necessary, and you need that additional coverage.
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03.Younger individuals are offered lower premium rates. Hence, getting term insurance in your younger years with long-term coverage can be beneficial since premiums stay the same throughout the policy term.03.Younger individuals are offered lower premium rates. Hence, getting term insurance in your younger years with long-term coverage can be beneficial since premiums stay the same throughout the policy term.
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04.As a general rule, your minimum sum assured amount should be at least 15 - 20 times your annual income.04.As a general rule, your minimum sum assured amount should be at least 15 - 20 times your annual income.
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05.Most policies mature at age 65 and can have tenures between 5 - 40 years. Therefore, you must understand how soon your children will be independent, how long you plan to work, etc.05.Most policies mature at age 65 and can have tenures between 5 - 40 years. Therefore, you must understand how soon your children will be independent, how long you plan to work, etc.
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06.Check the insurer's claim settlement process and CSR. An easy and quick claims process ensures your nominee gets their death benefit on time.06.Check the insurer's claim settlement process and CSR. An easy and quick claims process ensures your nominee gets their death benefit on time.
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07.Opting for online or E-term plans is recommended as they are cheaper. Online insurers like Tata AIA have also streamlined their insurance processes, like policy purchases, premium payments, and claims, to ensure hassle-free interactions.07.Opting for online or E-term plans is recommended as they are cheaper. Online insurers like Tata AIA have also streamlined their insurance processes, like policy purchases, premium payments, and claims, to ensure hassle-free interactions.
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08.Do not confuse term insurance with your investments. Term plans are different from endowment and unit-linked policies (ULIPs). Term insurance has no cash value, and you will not get your premiums back unless you choose Return of Premium plans. Its primary function is to offer protection.08.Do not confuse term insurance with your investments. Term plans are different from endowment and unit-linked policies (ULIPs). Term insurance has no cash value, and you will not get your premiums back unless you choose Return of Premium plans. Its primary function is to offer protection.
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09.Make your term plan tax efficient by opting for applicable tax# deductions under Section 80C. Under the Income Tax Act, life insurance policies are eligible for annual deductions up to ₹1.5 lakhs on premium payments.09.Make your term plan tax efficient by opting for applicable tax# deductions under Section 80C. Under the Income Tax Act, life insurance policies are eligible for annual deductions up to ₹1.5 lakhs on premium payments.
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10.Review your insurance coverage regularly, once every three to four years. This is to check if you need to increase or decrease coverage if there is a significant change in lifestyle or financial goals/obligations.10.Review your insurance coverage regularly, once every three to four years. This is to check if you need to increase or decrease coverage if there is a significant change in lifestyle or financial goals/obligations.
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11.Check policy exclusions and grace periods. Most policies do not cover suicides for the first 12 months after the policy commences. Term plans also have a grace period of 30 days, within which you need to pay your premiums.11.Check policy exclusions and grace periods. Most policies do not cover suicides for the first 12 months after the policy commences. Term plans also have a grace period of 30 days, within which you need to pay your premiums.
Why Choose Tata AIA Life Insurance Term Plans?
The Tata AIA Assurance
99.01% Individual Death Claim Settlement Ratio1
4 Hours
Express Claim Settlement2
72 Lakh+
Families protected so far3
81,000+ Crores
Assets Under Management4
2T&C apply
Term Insurance Terminologies - A Quick Glance
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Insurance Provider/Insurer
This is the insurance company you have purchased the term insurance policy from. For example, Tata AIA can be referred to as your insurance provider if you have purchased a plan from us.
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Policyholder/Insured
This is the person whose name the policy is purchased under. For example, if you buy a term plan from Tata AIA under your name, you are the term plan's policyholder.
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Nominee/Beneficiary
The person you declare in your policy that will get any promised proceeds or payments in the event of your untimely death.
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Death Benefit
This is the sum assured amount paid to the policy nominee when the insured dies when the term insurance policy is in effect.
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Sum Assured
This is the coverage amount that is an assured payment when the insured passes away during the policy term.
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Premium
This is a payment made to the insurance company in exchange for the coverage provided under a term plan. These payments can be made yearly, monthly or as a lump sum on policy purchase.
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Maturity/Survival Benefit
This is a payment made to you from the insurance company if you survive your life insurance policy. Generally, basic term insurance plans do not have any survival/maturity benefits, unless it is a term plan with an ROP feature.
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Policy Term
This is the length of time your term insurance plan is supposed to provide coverage. Most term plans offer tenures of 5 to 40 years.
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Grace Period
This is a cool-down period during which your policy premium must be paid. Failing to do so will result in your policy lapsing.
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Revival
This is the time within which you can "re-activate" your term policy if it has lapsed, due to your premiums not being paid. Most term plans have a 2-year revival period.
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Renewal
This process allows one to claim coverage under the same term insurance plan upon maturity.
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Policy Anniversary
This is the same date falling each year from the date of commencement of your policy till the date of maturity. For example, if your term plan commences on May 1st, 2023, its anniversary will be May 1st, 2024, the next year, and the year after until the policy expires.
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Base Policy
This is your original term policy without the inclusion of add-on riders or additional top-up plans or covers.
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Add-on Riders
These are additional plans that can be added to your base policy to increase its original coverage. Some riders^ will have their own sum assured amount that will be paid to the insured or the nominee based on what events or illnesses they cover.
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Life Stage Benefit
This is a unique feature added to life insurance plans that increase your sum assured amount at crucial stages of your life. For example, a term plan with this feature can have its sum assured amount increased~ upon the birth of your first child.
Frequently Asked Questions (FAQs)
What should be the duration of my term insurance plan?
This will depend on how long you need coverage and your financial obligations. For example, do you have any loans that must be paid off? Or children that are yet to finish their schooling?
Factors like these must be considered when you decide your policy tenure. If you are younger and have many financial obligations and goals yet to be fulfilled, opting for a long-term plan can be beneficial.
Is purchasing a term plan worth it?
Yes, it is worth buying a term insurance policy no matter what stage of life you are in. The significant coverage it provides can help your family cope with the loss of income, pay for living expenses and resolve any debts that must be paid off.
What happens if I outlive the term insurance policy period?
If you survive the policy term, the coverage will lapse along with your term insurance policy. This is because term plans do not offer maturity benefits.
What factors affect the term insurance premium?
These are some key factors insurance companies consider when calculating your term plan premiums:
- Your Age.
- Your chosen add-on riders^.
- Chosen sum assured and policy tenure.
- Medical history and current health condition.
- Annual income.
- Lifestyle habits (if you smoke or consume alcohol).
What are the different options for premium payment in term plans?
You can choose to pay for a term plan under these premium payment terms:
- Regular Pay: The premium payment term is the same as the policy term. This can be done annually, monthly, or half-yearly.
- Limited Pay: The duration for paying premiums is less than the policy term. Can be done annually, monthly, or half-yearly. It lasts however long your limited payment term lasts.
- Single Pay: A one-time lump sum payment.
Does the premium for my term insurance plan increase every year?
No, premiums under terms plans stay the same throughout the policy's term. They only change on renewal or if you buy a new policy as premium rates are adjusted to your age and current inflation rates.
What should be the sum assured for my term insurance plan?
Most experts recommend that you opt for a minimum sum assured that is 15 - 20 times your annual income. You must account for your living expenses, existing liabilities, future financial goals, and obligations to choose the right sum assured amount.
When is the right time to purchase term insurance in my life?
Buying a term insurance plan as early as possible is recommended, as premiums are much cheaper compared to later stages in your life. Doing so also ensures you are provided insurance coverage right from your younger years.
Should I purchase a term plan if my employer already provides life insurance coverage?
A personal term plan will offer more benefits and coverage regardless of your employment or employer status. It will remain in place if choose to switch jobs and the best term insurance plans can be customized to meet your needs.
Who should purchase a term plan in their life?
You should aim to buy a term insurance plan in your 20s. Also, choose a term plan that lets you increase your cover and change your nominee during key junctures in your life, for example, after marriage or when you have children.
How to select the best payout option for my term insurance plan?
You must choose a payout option based on your family's financial understanding, liabilities, and future goals. With that said, the lump-sum payout option is the most popular option.
What is a free look period in term insurance?
This is a particular length of time starting from policy commencement that allows you to cancel your term insurance for any reason with no penalty. In most instances, you will get your premium back. The free look period for term policies is 15 - 30 days depending on whether you have chosen offline or online term plan.
Are maturity benefits applicable to term insurance plans?
No, the policyholder does not get any survival or maturity benefits under a term plan unless their policy specifically states otherwise or if they have opted for a rider^ that offers maturity benefits.
How to benefit from tax while purchasing term insurance plans?
You can claim tax# deductions up to ₹1.5 lakhs per year on term insurance premium payments under Section 80C of the Income Tax Act. Moreover, the death benefits under term plans are fully tax-exempt under Section 10(10D).
Disclaimer
- The complete name of Tata AIA Sampoorna Raksha Supreme is Tata AIA Life Insurance Sampoorna Raksha Supreme (UIN:110N160V04) - A Non-Linked Non-Participating Individual Life Insurance Plan
- Tata AIA SRS Vitality Protect is a term solution which includes Tata AIA Life Insurance Sampoorna Raksha Supreme, a non-linked, non-participating, individual life insurance plan (UIN: 110N160V04) and Tata AIA Vitality Protect, a non-linked, non-participating, individual health rider (UIN: 110B046V02). Tata AIA Life Insurance Sampoorna Raksha Supreme is also available individually for sale.
- *Illustrated Premium is the monthly premium excluding taxes for 20 yr. old female, Standard Life, Non-Smoker for 1 Cr. Sum Assured with Policy Term of 20 yrs. (Regular Pay) under Life Option. Please refer Benefit Illustration for more details. Premium is subject to applicable taxes, cesses & levies which will be entirely borne/ paid by the Policyholder, in addition to the payment of such Premium. Tata AIA Life shall have the right to claim, deduct, adjust, recover the amount of any applicable tax or imposition, levied by any statutory or administrative body, from the benefits payable under the Policy. Kindly refer the sales illustration for the exact premium.
- @Applicable for specific plan options. Please refer brochure for additional details.
- ~Applicable for specific plan options. Please refer brochure for additional details.
- +Tax benefits of up to ₹46,800 u/s 80C is calculated at highest tax slab rate of 31.20% (including cess excluding surcharge) on life insurance premium paid of ₹1,50,000. Tax benefits under the policy are subject to conditions laid under Section 80C, 80D,10(10D), 115BAC and other applicable provisions of the Income Tax Act,1961. Good and Service tax and Cess if any will be charged extra as per prevailing rates. The Tax Free income is subject to conditions specified under section 10(10D) and other applicable provisions of the Income Tax Act,1961. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
- ^Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch.
- Tata AIA Life Insurance Non-Linked Comprehensive Protection Rider (UIN:110B033V02 or any other later version) - A Non-Linked, Non- Participating Individual Health Rider, Tata AIA Life Insurance Non-Linked Comprehensive Health Rider (UIN: 110B031V02 or any other later version) - A Non-Linked, Non- Participating Individual Health Rider, Tata AIA Vitality Protect (A Non-Linked, Non- Participating Individual Health rider (UIN:110B046V02), Tata AIA Vitality Health (A Non-Linked, Non- Participating Individual Health rider (UIN:110B045V02) are available under this plan.
- Tata AIA Vitality - A Wellness Program that offers you an upfront discount at policy inception. You can also earn premium discount / cover booster (as applicable) for subsequent years on policy anniversary basis your Vitality Status (tracked on Vitality app). Please refer rider brochures for additional details on health and wellness benefits.
- Vitality is a trademark licensed to Tata AIA Life by Amplify Health Assets PTE. Limited, a joint venture between Vitality Group International, INC. and AIA Company Limited. The assessment under the wellness program shall not be considered as a medical advice or a substitute to a consultation/treatment by a professional medical practitioner.
- #Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfillment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implication mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
- $Under Life Plus Option, an amount equal to the 105% of the Total Premiums Paid (excluding loading for modal premiums) shall be payable at the end of the Policy Term, provided the life assured survives till maturity and the policy is not terminated earlier.
- 1Individual Death Claim Settlement Ratio is 99.01% for FY 2022 - 23 as per the latest annual audited figures.
- 2Applicable to only non-early claims with more than 3 years of policy duration, non-investigation cases, up to Sum Assured of Rs. 50 lakhs. Applicable for branch walk in. Time limit to submit claim to Tata AIA Life Insurance is 2 pm on working days. Subject to submission of complete documents. Not applicable for ULIP policies and open title claims.
- 372,34,092 families protected till 31st March 2023.
- 4As on 31st August 2023, the company has a total Assets Under Management (AUM) of Rs. 81,601.11.
- This product is underwritten by Tata AIA Life Insurance Company Ltd.
- The plan is not a guaranteed issuance plan and it will be subject to company’s underwriting and acceptance.
- Insurance cover is available under this product.
- For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale. The precise terms and condition of this plan are specified in the Policy Contract.
- Buying a Life Insurance Policy is a long-term commitment. An early termination of the Policy usually involves high costs and the Surrender Value payable may be less than the all the Premiums Paid.
- In case of non-standard lives and on submission of non-standard age proof, extra premiums will be charged as per our underwriting guidelines.
- L&C/Advt/2023/Oct/3677
