NISM Series X-B · Unit 1 of 6 · about 17% of the paper
Risk management and insurance planning: NISM Series X-B notes and practice questions
25 marks. Identifying risks and choosing insurance to cover them.
What to know in Unit 1
- Principles of insurance.
- Life, health and general cover.
- Needs analysis.
- Product choice.
Key terms, examples and exam traps
Risk management process
The process is to identify risks, measure them, choose a treatment and monitor.
Example. An adviser lists a client's risks and assigns cover.
Exam trap. This statement is false: The process starts with buying a policy.
Risk treatment options
Risks can be avoided, reduced, retained or transferred; insurance is a way of transferring risk.
Example. A client keeps small risks and insures large ones.
Exam trap. This statement is false: Insurance eliminates all risk.
Insurable interest
The policyholder must stand to suffer a financial loss if the insured event occurs.
Example. A person can insure a spouse but not an unrelated stranger.
Exam trap. This statement is false: Anyone may insure anyone.
Utmost good faith
Both parties must disclose all material facts honestly, and non-disclosure can void the claim.
Example. A client who hides a heart condition risks rejection.
Exam trap. This statement is false: Disclosure is needed only at claim time.
Indemnity
General and health insurance restore the insured to the position before the loss without allowing profit.
Example. A fire policy pays the actual loss up to the sum insured.
Exam trap. This statement is false: Indemnity allows a claim larger than the loss.
Proximate cause
The claim is payable only if the loss arises from the insured peril as the nearest effective cause.
Example. A loss from an excluded cause is declined.
Exam trap. This statement is false: Any loss is paid if a policy exists.
Term insurance
Term insurance pays the sum assured on death during the term and nothing on survival, so premiums are low.
Example. A young earner buys a large term cover cheaply.
Exam trap. This statement is false: A term plan returns premiums by default.
Whole life and endowment
These combine cover with savings and are costlier per rupee of cover than term plans.
Example. An endowment pays on maturity or death.
Exam trap. This statement is false: Endowment plans give the highest cover per premium.
ULIP
A unit linked plan invests premiums in market funds after charges, with a life cover; it has a five-year lock-in.
Example. A policyholder switches between equity and debt funds.
Exam trap. This statement is false: ULIP returns are guaranteed.
Human life value
The human life value approach sets cover as the present value of the future earnings that the family would lose.
Example. Cover is based on expected income over working years.
Exam trap. This statement is false: Cover equals current annual expenses only.
Needs-based approach
The needs approach adds the family's future needs and liabilities and subtracts existing assets to find the cover.
Example. Cover covers loans, goals and living costs net of savings.
Exam trap. This statement is false: Cover is a fixed multiple for everyone.
Income multiple rule
A rough rule suggests cover of ten to fifteen times annual income, to be refined by a needs analysis.
Example. A first estimate for a young earner.
Exam trap. This statement is false: The multiple is set by law.
Health insurance
Health policies are indemnity contracts that cover hospital costs up to the sum insured, with waiting periods for pre-existing conditions.
Example. A person buys cover before illness arises.
Exam trap. This statement is false: Health cover applies from the first day for every condition.
Family floater and individual
A floater shares one sum insured among members, while individual policies give each person a separate sum.
Example. A floater is cheaper but the cover can be exhausted by one member.
Exam trap. This statement is false: A floater gives each member the full sum.
Deductible and co-payment
In co-payment the insured bears a fixed share of each claim; a deductible is an amount borne before the insurer pays.
Example. A policy requires the insured to pay 20% of each claim.
Exam trap. This statement is false: Co-payment reduces the premium to zero.
Critical illness cover
A critical illness plan pays a lump sum on diagnosis of a listed illness, regardless of the actual bills.
Example. A benefit policy pays on diagnosis.
Exam trap. This statement is false: It reimburses only actual expenses.
Personal accident cover
Personal accident cover pays for death or disability caused by accident.
Example. A policy pays for loss of limb in an accident.
Exam trap. This statement is false: It covers illness-related death.
Disability cover
Income protection or disability cover replaces part of earnings if the person cannot work.
Example. A rider pays a monthly benefit on disability.
Exam trap. This statement is false: Term plans always include disability benefit.
Motor and home insurance
Third-party motor cover is mandatory; home policies cover structure and contents against listed perils.
Example. A car owner must hold at least the liability cover.
Exam trap. This statement is false: Own-damage motor cover is compulsory.
Claim settlement ratio
The ratio of claims settled to claims received indicates an insurer's claims record, among other factors for choosing an insurer.
Example. An adviser checks the insurer's record.
Exam trap. This statement is false: The ratio guarantees that every claim will be paid.
Nomination and assignment
A nominee receives the proceeds as a trustee in many cases, while assignment transfers rights in the policy.
Example. A policyholder updates the nominee after marriage.
Exam trap. This statement is false: A nominee always becomes the legal owner.
Beneficiary nominee under MWP Act
A policy under the Married Women's Property Act creates a trust for the spouse and children, protecting proceeds from creditors.
Example. A policy is protected from the policyholder's creditors.
Exam trap. This statement is false: MWP policies can be claimed by creditors.
Free-look period
A new life policy can be returned within the free-look period for a refund subject to deductions.
Example. A buyer cancels the policy within the window.
Exam trap. This statement is false: There is no right to return a policy.
Riders
Riders add benefits such as accidental death or waiver of premium for an extra cost.
Example. A buyer adds an accident rider.
Exam trap. This statement is false: Riders are always free.
Insurance as part of the plan
Insurance is for protection; mixing it with investment often leads to poor outcomes in both, so advisers usually separate them.
Example. An adviser recommends term plus mutual funds.
Exam trap. This statement is false: Combination products always beat the two separately.
Emergency fund and risk
An emergency fund of three to six months of expenses is the first line of defence before insurance.
Example. A client keeps liquid money for shocks.
Exam trap. This statement is false: An emergency fund is not needed with insurance.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which statement best describes “Indemnity”?
- Income protection or disability cover replaces part of earnings if the person cannot work.
- General and health insurance restore the insured to the position before the loss without allowing profit.
- In co-payment the insured bears a fixed share of each claim; a deductible is an amount borne before the insurer pays.
- The compound annual growth rate expresses the annualised growth between two values over a period.
Q2. Which term is described here? In co-payment the insured bears a fixed share of each claim; a deductible is an amount borne before the insurer pays.
- Atal Pension Yojana
- Cognitive and emotional biases
- Deductible and co-payment
- Set-off and carry forward
Q3. Which statement best describes “Motor and home insurance”?
- Third-party motor cover is mandatory; home policies cover structure and contents against listed perils.
- If a person dies without a will, the property passes according to personal succession laws.
- A preference to keep things as they are and avoid change.
- The savings ratio is savings as a share of income and shows the client's capacity to fund goals.
Q4. Which statement best describes “Risk treatment options”?
- Advisers adapt plans for business owners, senior citizens, NRIs and clients with irregular income.
- The corpus is the amount that, invested at an assumed return, can fund inflation-adjusted expenses for the expected life.
- Risks can be avoided, reduced, retained or transferred; insurance is a way of transferring risk.
- A common guide is that EMIs should not exceed about 40% of income and total debt service should be sustainable.
Q5. Which term is described here? Insurance is for protection; mixing it with investment often leads to poor outcomes in both, so advisers usually separate them.
- Riders
- Insurance as part of the plan
- Annuity with return of purchase price
- Standard deduction
Q6. Which term is described here? Both parties must disclose all material facts honestly, and non-disclosure can void the claim.
- Goal-based planning
- Emergency fund
- TDS
- Utmost good faith
Frequently asked questions
How much of NISM Series X-B comes from Unit 1?
Unit 1 (Risk management and insurance planning) usually carries about 17% of the questions. The whole exam has 120 questions and the pass mark is 60%.
What should I study in NISM Series X-B Unit 1?
Principles of insurance. Life, health and general cover. Needs analysis. Product choice.
Are these NISM Series X-B practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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