Life Insurance
What this domain tests
Questions here cover product types, premium structure, assignment and nomination, revival, and payout on maturity or death. The examiner often tests whether you know which policy type builds a fund and which does not.
Core rules
- Term plan: pure risk cover, no maturity value, lowest premium, no surrender value.
- Whole life: cover for the whole lifetime, payable on death.
- Endowment: pays the sum assured on death or on survival to maturity; combines protection and savings.
- Money-back: periodic survival benefits, with the balance paid at maturity or on death.
- ULIP: market-linked, with a lock-in of five years; the investment risk is borne by the policyholder.
- Annuity: converts a lump sum into periodic pension payments.
- Premium is built from mortality, expense and interest components; a level premium over the term means the earlier years carry a surplus that funds later, costlier years.
- Assignment (s.38) transfers the rights of the policy to another person; nomination (s.39) only authorises the nominee to collect the money as a trustee.
- Revival is possible within five years of lapse on payment of arrears with interest and evidence of good health.
- Paid-up value applies after two years' premiums; surrender value is paid on early exit.
- Moratorium: after eight years from issue, revival or last reinstatement, the insurer cannot repudiate a claim except for proven fraud.
Worked example
An endowment policy for a sum assured of ₹5 lakh runs for 20 years, but premiums stop after 10 years. The paid-up value is ₹5,00,000 × 10/20 = ₹2,50,000, payable at maturity. If the policyholder had surrendered instead, the amount would be lower and based on the insurer's surrender factor table.
Traps that cost marks
- Expecting a surrender value on a pure term plan.
- Treating nomination as assignment.
- Describing a ULIP as a guaranteed-return deposit.