Death cover
The life insurance benefit paid only if the insured dies within the policy's specified period — nothing is paid if the insured survives it, the defining feature of a pure term plan.
In plain language
Life insurance products give one of two kinds of benefit, and the workbook names them as a pair. Death cover pays only if the insured dies within a specified period. Its mirror image, survival benefit, pays only if the insured survives that period.
A pure term insurance policy provides death cover only — if the insured survives the term, there is no payout at all. An investment cum insurance policy (an endowment plan or ULIP, for instance) blends the two, offering both a death cover and a survival or maturity benefit.
How it works
The workbook's definition is precise about the "only if" condition: death cover is the benefit paid only on the death of the insured within a specified period — if death does not occur within that period, no benefit is paid at all under that component.
This is what makes pure term insurance the cheapest way to buy a large sum assured: the premium is not funding any investment or survival payout, only the pooled risk of death within the term. A Rs 1 crore death cover on a healthy 35-year-old costs a fraction of what a Rs 1 crore endowment or ULIP with the same sum assured would, precisely because the term plan has no survival benefit to fund.
The workbook's payment-of-sum-assured clause applies here too: whether the death cover payout is a lump sum or instalments is set out in the contract, and the mode of premium payment — monthly, quarterly, half-yearly, annually or single premium — is likewise specified in the contract.
A worked example
Illustrative comparison.
Mr Kapoor, age 35, buys a 20-year term plan with a sum assured of Rs 1 crore — pure death cover, no survival benefit — for an annual premium of roughly Rs 12,000.
His colleague Ms Verma buys a 20-year endowment policy with the same Rs 1 crore sum assured, combining death cover with a maturity (survival) benefit, for an annual premium many times higher — because her premium is also funding the amount she is guaranteed to receive if she survives the 20 years.
If Mr Kapoor dies in year 12, his family receives the full Rs 1 crore death cover. If he survives all 20 years, his policy simply lapses at term end with nothing paid — the defining trade-off of a pure death-cover product bought at a much lower premium.
Why NISM asks about it
Chapter 2 (Features of Life Insurance Products), section 2.1, opens the chapter by defining death cover against survival benefit, immediately before describing how term plans and investment-cum-insurance policies combine or separate the two. Expect a conceptual question distinguishing death cover from survival benefit, and identifying which product types offer which.
Common exam traps
- Death cover pays nothing if the insured survives the period — this is not a design flaw, it is the entire basis of why term insurance is cheap.
- Death cover and survival benefit are not the same as "life insurance" generically — a single policy can carry one, the other, or both.
- Term insurance = death cover only. Investment-cum-insurance policies combine death cover with a survival or maturity benefit.
Check yourself
1.Which of the following provides ONLY a death benefit?
- a)Endowment policy
- b)Term insurance policy
- c)Whole life policy
- d)Unit linked insurance plan
Show the answer
Answer: (b) Term insurance policy
TERM INSURANCE POLICIES PROVIDE FOR ONLY DEATH BENEFIT. INVESTMENT CUM INSURANCE POLICIES WILL PROVIDE A COMBINATION OF THE ABOVE TWO FEATURES — death cover and survival benefit. Death cover means the benefit is paid only on the death of the insured within a specified period; if death does not occur, then no benefit will be paid.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Claim settlement ratioThe share of claims an insurer actually paid out of all the claims it received in a year, published by IRDAI — one yardstick for picking an insurer, though not the only one.
- Discontinuation policy fundThe fund a lapsed or surrendered ULIP's balance value moves into during the 5-year lock-in, once the capped discontinuation charge is deducted — insurance cover stops, but the money stays locked until the lock-in ends.
- Human Life ValueThe present value of the income a person is expected to earn over their remaining working life that is available for dependents — the upper bound on how much life cover is justified.
- Minimum sum assured ruleThe IRDAI requirement that a life policy provide a minimum sum assured of 10 times the annual premium below age 45, 7 times above 45, and 5 times where the term is under 10 years.
- Survival benefitThe life insurance benefit paid when the insured survives a specified period - the half of a policy that a pure term plan does not have, and the reason an investment cum insurance policy costs more.
- Term insurance with return of premiumA term insurance variant that pays back the premiums at the end of the term if the insured survives - the workbook computes the implied return on the extra premium at 4.61%.