Archive / Investment Adviser (Level 2) / Life Insurance Products

nism-series-xb-pure-term-insurance-cost-comparison-endowment[ INVESTMENT ADVISER (LEVEL 2) ]

In Bose's case, what is the annual cost of a pure term life insurance policy providing Rs. 1,00,000 sum assured for a 20-year term?

[ A ]Rs. 1,500 per annum

[ B ]Rs. 150 per annum[ CORRECT ]

[ C ]Rs. 5,850 per annum

[ D ]Rs. 6,000 per annum

Takeaway

The stem explicitly states that a comparable pure term policy for Rs. 1 Lakh sum assured over 20 years costs Rs. 150 per annum, so option B is correct.

Derivation

Practice Case 2 gives this figure directly: 'A term plan of similar tenor and maturity costs Rs. 150 per Rs. 1 lakh sum insured.' This Rs. 150 figure is the pure mortality/risk cost that is then subtracted from Bose's Rs. 6,000 total endowment premium to isolate the Rs. 5,850 pure investment portion used in the subsequent IRR calculation. This tests whether candidates can correctly extract and hold onto a given fact from the case narrative — the Rs. 150 term cost — since the wrong options substitute either the derived investment portion or the gross premium in its place, both of which represent different quantities entirely.

Why the others fail

A — Rs. 1,500 per annum

Rs. 1,500 is ten times the actual stated term insurance cost of Rs. 150 per Rs. 1 Lakh sum assured given in the case.

C — Rs. 5,850 per annum

Rs. 5,850 is the net annual investment portion remaining after the Rs. 150 term cost is deducted from the gross premium, not the term cost itself.

D — Rs. 6,000 per annum

Rs. 6,000 is the gross annual premium of the full endowment policy, not the isolated pure term insurance cost.