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

Mr. Sunil Kapoor, aged 35, earns Rs 20 lakh a year, has a wife and a child, a home loan outstanding of Rs 50 lakh and no existing life cover. He needs a term cover under the human life value approach plus clearance of liabilities. Assume his annual savings available to the family are Rs 8,00,000 for 15 remaining years, discounted at a net rate making the present value factor 10. Which cover is most appropriate, assuming no existing financial assets?

The appropriate cover is Rs 1.30 crore. The present value of the income the family needs is Rs 8 lakh times 10, which is Rs 80 lakh, and the Rs 50 lakh home loan must also be cleared, since he has no assets to offset it.

  1. ARs 80 lakh
  2. BRs 1.30 croreCorrect
  3. CRs 50 lakh
  4. DRs 30 lakh

Explanation

Income replacement need = 8,00,000 x 10 = Rs 80 lakh. Adding the loan of Rs 50 lakh gives Rs 1.30 crore. Rs 80 lakh omits the loan, Rs 50 lakh covers only the loan, and Rs 30 lakh subtracts the loan wrongly.

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