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nism-series-xb-adil-additional-life-insurance-needs-analysis[ INVESTMENT ADVISER (LEVEL 2) ]

Adil wants to ensure his spouse can meet monthly household expenses of Rs. 25,000 (Rs. 3,00,000 p.a.) for 30 years in the event of his death. Inflation is 6% p.a. and investment return is 8% p.a. (real rate = 1.89%). He also wants to provide Rs. 10 Lakhs for his child's corpus and clear an outstanding home loan of Rs. 30 Lakhs. He currently holds Rs. 50 Lakhs of life insurance. How much ADDITIONAL life insurance cover should Adil purchase?

[ A ]Rs. 44 Lakhs
[ B ]Rs. 69 Lakhs
[ C ]Rs. 81 Lakhs
[ D ]Rs. 58 Lakhs[ CORRECT ]
Takeaway

After totalling the PV of living expenses, home loan, and child corpus and deducting Adil's existing Rs. 50 Lakhs cover, his additional life insurance requirement is Rs. 58 Lakhs, so option D is correct.

Derivation
PV of 30-year living expenses at the real rate of 1.89% = PV(1.89%, 30, -3,00,000) = Rs. 68,24,712. Total financial requirement = expenses (Rs. 68.25L) + home loan (Rs. 30L) + child corpus (Rs. 10L) = Rs. 1,08,24,712. Additional cover required = Rs. 1,08,24,712 - existing cover (Rs. 50,00,000) = Rs. 58,24,712, rounding to Rs. 58 Lakhs. This tests the full needs-based method end-to-end: correctly deriving the real discount rate, applying it to a level annuity, then adding liabilities and goals before netting off existing resources — skipping any one step produces one of the distractor values.
Why the others fail
A — Rs. 44 Lakhs
Results from omitting the Rs. 30 Lakhs home loan liability from total needs, or from double-counting the existing Rs. 50 Lakhs cover in the subtraction step.
B — Rs. 69 Lakhs
Represents roughly the PV of living expenses alone, without adding the child corpus or home loan or netting off the existing insurance cover.
C — Rs. 81 Lakhs
Obtained if the existing Rs. 50 Lakhs life insurance cover is never deducted from total liabilities and goals, overstating the additional cover needed.