NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products
Meera, aged 40, has an annual income of Rs 12,00,000 and wants term cover using the human life value (income replacement) approach. She will work 20 more years, spends 25% of income on herself, and the family needs the balance. Ignoring inflation and discounting, what is the cover on a simple undiscounted basis? Pick the correct figure.
The cover is Rs 1,80,00,000. After deducting 25% personal spending, Rs 9,00,000 a year remains for the family, and multiplying by the 20 remaining working years gives Rs 1,80,00,000 on an undiscounted basis.
- ARs 1,80,00,000Correct
- BRs 2,40,00,000
- CRs 60,00,000
- DRs 3,00,00,000
Explanation
Income supporting the family = 12,00,000 x 75% = Rs 9,00,000 per year. Over 20 years this is 9,00,000 x 20 = Rs 1,80,00,000. Rs 2,40,00,000 ignores personal expenses, Rs 60,00,000 uses only the 25% personal share for 20 years incorrectly reduced, and Rs 3,00,00,000 is a wrong base.
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