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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

Case: Ms. Iyer, aged 35, earns Rs 18 lakh a year, has a spouse and a 5-year-old child who depend on her, and holds only a Rs 25 lakh endowment policy. She also has a Rs 40 lakh home loan outstanding. Her annual expenses are Rs 8 lakh. Using the human life value approach, her adviser focuses on replacing her income. Which recommendation best addresses her primary protection gap?

A pure term cover sized to replace her income and clear the Rs 40 lakh loan best fits. Her main gap is premature death with dependants and debt, and term insurance gives the highest cover for the lowest premium, unlike endowment, ULIP or annuity products.

  1. ABuy a pure term cover sized to income replacement and the loanCorrect
  2. BIncrease the endowment policy's sum assured
  3. CMove all savings into a ULIP for cover
  4. DBuy a single-premium annuity immediately

Explanation

Her dependants need income replacement and loan clearance if she dies early. Pure term insurance gives the largest cover per rupee of premium. Endowment and ULIP policies bundle investment and give lower cover; an immediate annuity addresses longevity risk, not premature death.

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