Life Insurance Products for NISM certification
Life insurance replaces the income a family loses when an earner dies. This chapter covers what a life policy contains, how much cover a person needs (human life value, needs-based and combination methods), the main product types from pure term to ULIPs, riders, loans, nomination and assignment, the Married Women's Property Act, and how an adviser should compare products. Rules and figures are as per the NISM X-B workbook (Sept 2026 version); all worked figures were checked by calculation.
Advice & ResearchSeries X-B65 MCQs5 lessons28 flashcards6 memory tricks
Practise Life Insurance Products free
What you'll learn
- What a life policy contains
Name the parts of a life insurance contract and work out a paid-up value and a surrender value. - How much life cover: human life value
Estimate cover by the income replacement, needs-based and combination methods. - Term, endowment and whole life
Compare pure protection with investment-cum-insurance and work out the return hidden in a combined policy. - ULIPs versus term plus mutual funds
Weigh flexibility, transparency and tax between a ULIP and a term policy combined with a mutual fund. - Riders, policy facilities and MWPA
Choose suitable riders and use loans, assignment and the Married Women's Property Act correctly.
Key formulas
| Paid-up sum assured | Sum assured × premiums paid ÷ premiums payable |
|---|---|
| Minimum guaranteed surrender value (regular premium, non-linked) | 30% of premiums paid (year 2), 35% (year 3), 50% (years 4–7), rising to at least 90% (last 2 years) |
| Single premium non-linked | 75% (first 3 years) rising to 90% (last 2 years) |
| Adjusted (real) discount rate | (1 + investment return) ÷ (1 + income growth) − 1 |
| HLV (income replacement) | PV of the net income for the years to retirement, at the adjusted rate, payments at the start of each year |
| Needs-based cover | PV of family expenses + liabilities + goals − existing investments − existing cover |
Concepts explained
Human life value (HLV)
HLV is the present value of the earner's future income available to the family, after their own expenses and taxes.
What it means
- Discount at the adjusted rate: (1 + return) ÷ (1 + income growth) − 1.
- Faster income growth or more working years raise HLV.
- HLV is always at least the needs-based amount.
- Net income ₹8 lakh, 25 years, growth 5%, return 8%
- Adjusted rate 2.86%
- PV at start of each year
Answer: HLV ≈ ₹1.46 crore
- Income growth 8% = return 8%
- Adjusted rate 0
- ₹8 lakh × 25
Answer: HLV = ₹2 crore
Related terms
- Needs-based method: cover = needs − assets − existing cover
- Combination method: income corpus + loans − assets − existing cover
Exam tip: If the question asks what happens when income growth rises, HLV goes up; when the person gets older, HLV goes down.
Return hidden in an investment-cum-insurance policy
Subtract the pure term premium for the same cover; the remaining premium is the investment, and RATE or XIRR on the illustrated maturity gives its return.
What it means
- Use the insurer's official benefit illustration.
- RATE for a single maturity payout; XIRR for several payouts.
- Typical endowment returns: about 3–5% a year, not guaranteed.
- Extra premium ₹8,000 a year for 30 years
- Maturity ₹5,40,000
- RATE(30, −8000, 0, 540000, 1)
Answer: ≈ 4.8% a year
Related terms
- Benefit illustration: insurer's document at 4% and 8%
- Decoupling: separating cover from investment
Paid-up value and surrender value
A policy that stops paying premiums becomes paid-up with a proportionately reduced sum assured, or can be surrendered for its surrender value.
What it means
- Paid-up SA = SA × premiums paid ÷ premiums payable.
- Guaranteed surrender value after 2 full years: 30%, 35%, 50% (years 4–7), up to 90%.
- ULIP discontinuance charge capped at ₹6,000.
- SA ₹12 lakh, 20 annual premiums
- 8 paid
- 12 × 8 ÷ 20
Answer: ₹4.8 lakh
- Annual premium ₹40,000, 3 paid = ₹1,20,000
- 35% × ₹1,20,000
Answer: At least ₹42,000
Related terms
- Lapse: policy ends with no claim payable
- Revival: paying arrears to restart a lapsed policy
Married Women's Property Act policy
A life policy declared under the MWP Act, 1874 at purchase belongs to the wife and/or children and is safe from the insured's creditors.
What it means
- Beneficiaries: wife and/or children only, not parents.
- Can't be changed later, even after divorce.
- Survival benefits also go to the beneficiaries.
- Large personal guarantees for business loans
- Term plan under MWPA for wife and son
Answer: Claim goes to them; creditors can't attach it
Related terms
- Beneficial nominee: spouse, parent or child keeps the money (2015 amendment)
- Trust: MWPA policy acts like a trust for the beneficiaries
ULIP versus term plus mutual fund
Term plus mutual fund keeps protection and investment separate; a ULIP bundles them with a 5-year lock-in, tax-free switches and conditional tax-free maturity.
What it means
- ULIP maturity tax-free only if SA ≥ 10× annual premium and (for policies from 1 Feb 2021) annual premium ≤ ₹2.5 lakh.
- Missing ULIP premiums in years 1–5 stops the cover.
- Mutual funds are more transparent: costs sit inside the NAV.
- Annual ULIP premium ₹3,13,200
- Above ₹2.5 lakh, issued after Feb 2021
Answer: Maturity gains taxed as capital gains
Related terms
- Type II ULIP: death benefit = sum assured + fund value
- Mortality charge: cost of the life cover, deducted by unit cancellation
Memory tricks
Sum assured must be at least 7× annual premium below age 50 and 5× above 50 (IRDAI 2024).
Guaranteed surrender value: 30% in year 2, 35% in year 3, 50% in years 4–7, at least 90% in the last two years.
Higher income growth raises HLV; fewer years to retirement lower it.
MWPA beneficiaries are wife and/or children only, can't be changed, and are protected from creditors.
Assignment cancels nomination, except assignment to the insurer for its own loan; nomination revives on reassignment.
ULIP maturity exempt if SA ≥ 10× premium; policies from 1 Feb 2021 with premium above ₹2.5 lakh are taxed as capital gains.
Try 3 NISM-style questions
Q1. A ULIP policyholder surrenders in the third year. Under the rules in the workbook,
- The full fund value is paid out at once, with no charge of any kind and no waiting period
- Nothing is payable because the lock-in has not ended
- The insurer pays 35% of premiums, as for traditional policies
- A discontinuance charge up to ₹6,000 is deducted and the rest is paid after the 5-year lock-in
Show answer
Answer: (4) A discontinuance charge up to ₹6,000 is deducted and the rest is paid after the 5-year lock-in
The fund, less a discontinuance charge capped at ₹6,000, moves to a discontinued policy fund and is paid after the lock-in.
Q2. Compared with a non-participating policy with the same cover, a participating policy usually has
- A higher premium
- A lower premium
- The same premium
- No premium after the guaranteed-bonus period
Show answer
Answer: (1) A higher premium
Participating policies share in the insurer's profits through bonuses, so their premiums are higher.
Q3. Other things being equal, as a person gets older their human life value
- Rises, because their salary is higher
- Stays the same throughout working life
- Rises until age 60, then falls sharply
- Falls, because fewer earning years remain
Show answer
Answer: (4) Falls, because fewer earning years remain
The adjusted rate stays the same, but the number of years falls, so the present value falls.
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