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NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products

Term Insurance Plans for NISM Investment Adviser Level 2

Updated 11 October 2026 · Fact-checked

A term insurance plan is pure life protection. It pays the sum assured to the nominee if the life assured dies within the policy term, and pays nothing on survival in a basic plan. Variants change the cover or return premiums. To solve questions, match the client's need to the variant and check suitability.

Understand Term Insurance Plans

A term insurance plan gives life cover for a fixed period in return for a premium. If the life assured dies during the term, the insurer pays the sum assured to the nominee or beneficiary. If the life assured survives the term, the plan ends and nothing is paid. This is why it is called pure protection.

Because there is no savings or maturity benefit, term premiums are low for the cover they give. A younger, healthy, non-smoking person usually pays less than an older or smoker. Underwriting looks at age, health, occupation, habits and income. The adviser's job is to match cover to the client's real need, not to sell a product for returns.

Term plans come in several variants:

  • Level term: sum assured stays the same through the term.
  • Increasing term: cover rises over time, either by a fixed amount or percentage. It helps offset inflation.
  • Decreasing term: cover falls over time. It suits a loan that reduces, such as a home loan (often called mortgage cover).
  • Return of premium (ROP): if the life assured survives the term, the insurer returns the premiums paid, as per policy terms. The premium is much higher than for a plain term plan. Money is tied up for the full term with no growth, so the effective return is low. Check whether taxes or GST paid are returned, as terms differ by insurer.
  • Convertible term: lets you convert to a savings plan under stated conditions.

Riders are optional add-ons for extra premium. Common ones are accidental death benefit, waiver of premium, critical illness and disability. Riders cover specific events only and have their own terms and exclusions. Do not treat them as a substitute for a health policy.

Suitability for an adviser: term plans fit anyone with dependants or liabilities. They suit income earners who want high cover at low cost. A common rule is to buy term cover and invest the balance separately. A death within the term is paid, but a death after the term ends is not.

Key formulas to remember

Human life value (income replacement) method
Cover needed ≈ Present value of the future income the family depends on, less existing assets
Use a discount rate that reflects inflation-adjusted returns. Then subtract existing life cover and investments earmarked for the family.
Needs-based cover
Cover needed = Outstanding liabilities + Future goal costs + Family living expenses (capitalised) − Existing assets and cover
Liabilities include loans. Goals include education and marriage. Existing cover includes employer group cover.
Simple income multiple rule of thumb
Cover ≈ Annual income × a multiple chosen by age and need
A rough guide only, not a regulatory rule. Exams may give the multiple in the question.
Return of premium benefit
Amount returned on survival = Premiums paid (as per policy terms)
Usually no interest. Check treatment of taxes and rider premiums in the question.
Survival payout under basic term
Maturity benefit = ₹0
Pure term plans pay only on death within the term.

How to solve Term Insurance Plans questions

Use this order for any term insurance question, whether it is a concept MCQ or a caselet on cover needed.

  1. 1Identify the product: pure term, ROP, increasing, decreasing, convertible or term with rider.
  2. 2Note the trigger: death within the term pays; survival pays nothing except in ROP or similar.
  3. 3If it is a cover calculation, list liabilities, goals and family expenses, then subtract existing assets and cover.
  4. 4Check the client's profile: age, dependants, loan type, income stability and risk of inflation.
  5. 5Match the variant to the need: decreasing for reducing loan, increasing for inflation, ROP only if client insists on getting premiums back.
  6. 6Check riders: confirm each covers a defined event only and has its own premium and exclusions.
  7. 7Eliminate options that call term a savings or investment product or that promise survival benefits in basic term.

Quickest way: Need to variant match

When to use it: Use for scenario MCQs where a client profile is given and you must pick the right plan or cover.

  1. Read the need: loan, family income, inflation or premium refund.
  2. Loan that reduces over time points to decreasing term.
  3. Concern about inflation eroding cover points to increasing term.
  4. Wants premiums back points to ROP, but flag the higher cost.
  5. Wants lowest cost for high cover points to level pure term.
  6. For cover amount, do liabilities + goals + expenses − existing assets.

Common mistakes in Term Insurance Plans

  • Saying a basic term plan pays a maturity benefit.

    Students mix term plans with endowment plans.

    Fix: Remember pure term pays only on death within the term. Survival means no payout.

  • Calling ROP the best option because money comes back.

    The refund sounds like free money.

    Fix: ROP premium is much higher and the refund has no growth. It is costly protection plus a low-return deposit.

  • Choosing increasing term for a reducing loan.

    Students mix up the direction of cover.

    Fix: Decreasing term matches a reducing loan. Increasing term matches rising costs or inflation.

  • Treating riders as full substitutes for health or disability policies.

    Riders sound comprehensive.

    Fix: Riders cover set events with limits and exclusions. A separate health policy covers hospital costs.

  • Forgetting to subtract existing cover and assets in a needs calculation.

    Students stop after adding liabilities and goals.

    Fix: Always finish with the deduction of existing assets and life cover.

  • Treating the income multiple rule as a regulation.

    It is repeated so often it sounds official.

    Fix: It is only a rule of thumb. Use the multiple given in the question.

Worked examples

Example 1

A client has a home loan outstanding of ₹40,00,000, a child's education goal of ₹20,00,000, and family expenses to be covered of ₹30,00,000 (capitalised). He has investments of ₹25,00,000 and existing life cover of ₹30,00,000. What additional term cover does he need under the needs-based method?

Show the solution
  1. Total needs = 40,00,000 + 20,00,000 + 30,00,000 = ₹90,00,000.
  2. Existing resources = 25,00,000 + 30,00,000 = ₹55,00,000.
  3. Additional cover = 90,00,000 − 55,00,000 = ₹35,00,000.

Answer: ₹35,00,000

Example 2

A client has a reducing-balance home loan and wants his family to be free of the loan if he dies, at the lowest cost. Which plan suits best: increasing term, decreasing term, return of premium term, or a savings plan?

Show the solution
  1. The need is cover that matches a loan that falls over time.
  2. Decreasing term cover falls with time, which matches the loan.
  3. Lowest cost rules out ROP, which has a much higher premium.
  4. Increasing term gives more cover than needed later, so costs more.
  5. A savings plan is not pure protection and costs more for the cover.

Answer: Decreasing term

Exam tips

  • Look for the words pure protection, no maturity benefit and death within the term. They signal basic term.
  • For ROP, expect options that call it cheap. The correct statement is that it costs more than plain term.
  • Match the variant to the need: loan to decreasing, inflation to increasing.
  • In cover calculations, do not skip the deduction of existing assets and cover.
  • If the question gives a multiple or discount rate, use it as given rather than a rule you remember.

Practice questions from Life Insurance Products

Term Insurance Plans in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Term Insurance Plans: frequently asked questions

What are the types of term insurance plans in the NISM X-B exam?

Know level term, increasing term, decreasing term, return of premium and convertible term. Also know riders such as accidental death, waiver of premium and critical illness. Questions usually ask you to match a variant to a client's need.

What are the pros and cons of a return of premium term plan?

The pro is that premiums are returned if the life assured survives the term. The cons are a much higher premium and no growth on the money returned. For many clients, plain term plus separate investing is more efficient.

How do I calculate term insurance cover needed?

Add outstanding liabilities, future goal costs and capitalised family expenses. Then subtract existing assets and life cover. The result is the additional cover needed. Income replacement is another method.

Does a term plan pay anything if I survive the term?

A basic term plan pays nothing on survival. Only variants such as return of premium pay something, and that is the premiums paid as per the policy terms.