## Important Questions Insurance Planning CFP

Posted by Prashant Shah on March 27, 2014

Following Questions have been suggested by one of the reader as important for CFP exam. I don’t own any of the question. Suggest modifications in the questions if any.

Q1. A bunglow was constructed at a cost of rs 2crore in 2006 and a further Rs1crore was spent over on furnishing in 2008.the bunglow is valued at Rs12 crore in 2012.the costs of construction and furnishing have escalated rate 10% and 15% respectively over the period.the owner wants to totally absolve himself of any expences,in case bunglow is razed down due to some peril. what value would you advise the owner to insure the property?

A) 5.34 Crore.

B)3.50 crore.

C)5.90 crore.

**D)5.29 crore.**

Q2. A client’s 20 year money back policy of sum assured rs 2 lakh has annual premium of rs 13672, Policy pays back 20% of s.a after each of first three 5-years survival periods and another 40% of s.a on surviving full term. The client has received the third money back. You estimate the gross returns presently in the policy considering reversionary bonus of rs 50 per thousands s.a. you compare the cost benefit if the client pays all premiums and survives the policy and also gets rs 150 per thousand s.a as loyalty bonus. you conclude that _________.

a)the overall return improves marginally by 1.15% p.a

b)the additional in flow on 5 future premiums would amount to over 19% p.a returns

c) the additional in flow on 5 future premiums would amount to nearly 30% p.a returns

d) the additional in flow on 5 future premiums less opportunity cost would amount to nearly 12%

**Solution: Suggestions invited for correction**

CF-BGN |
CF-BGN |
||

1 | -13672 | 1 | -13672 |

2 | -13672 | 2 | -13672 |

3 | -13672 | 3 | -13672 |

4 | -13672 | 4 | -13672 |

5 | -13672 | 5 | -13672 |

6 | 26328 | 6 | 26328 |

7 | -13672 | 7 | -13672 |

8 | -13672 | 8 | -13672 |

9 | -13672 | 9 | -13672 |

10 | -13672 | 10 | -13672 |

11 | 26328 | 11 | 26328 |

12 | -13672 | 12 | -13672 |

13 | -13672 | 13 | -13672 |

14 | -13672 | 14 | -13672 |

15 | -13672 | 15 | -13672 |

16 | 190000 | 16 | 26328 |

IRR |
4.80% |
17 | -13672 |

– | – | 18 | -13672 |

– | – | 19 | -13672 |

– | – | 20 | -13672 |

– | – | 21 | 310000 |

– | – | IRR |
5.95% |

Q3. Mr. A has gross annual salary of 9 lakh of which he saves 30% which include statutory EPF deduction, PPF and monthly systematic investment in long term MF scheme. Another 30% goes toward servicing of household & car loan & taxes. His financial planner advice him to accumulate 6 months household expense in liquid fund. HE change job and expect immediate rise of 20% in his gross income .You estimate that other heads would not change materially except his household expense which would rise by 5% due child education. How many months will it take to accumulate liquidreserve?

a.25months

b.11months

c.14months

d. 13 months

**Solution: Same question in Investment Planning**

900000 | INCOME | 1080000 |

270000 | EPF | 270000 |

270000 | LOAN | 270000 |

360000 | HOUSEHOLD | 378000 |

SAVINGS | 162000 | |

REQUIREMENT | 189000 | |

SAVINGS PA | 162000 | |

YEAR | 1.166666667 | |

MONTHS | 14 |

Q4. An industrialist started a project on 1st nov 2009 with own capital of rs 1crore. He arranged a project of rs 1.5crore by a back on 1st july 2009 at a rate of 12%p.a. the terms of finance were quarterly invested.only payments up to six quarter and the repayment of premium in three equal installments from the end of seven quarter along with interest on the loan outstanding.he infuced fresh own funds towards working capital of rs 20 lakh on 7th december 2009 and rs 30 lakh on 4th november 2010.the project completed with a profit of rs 4.5crore on 6th september 2012.find the return generated by the project…

a)22.59%p.a.

b)30.16%p.a.

c)30.57%p.a.

d)32.37%p.a.

Q5. A company in the business of warehousing.in 2012,insured its warehouse premises also calamity for a value of rs 1.65cr towards liability coverage,separate insurance towards clients for rs 15cr each were taken to cover the goods kept at any time.the company has cover of rs 10cr also.the warehouse was completely destroyed in fire.the registered amount of rs 30cr.what insurance can be setteled in the company’s claim?

a)rs 1.65 cr to the company and rs 30cr towards liablity to clients.

b) nil to the company and rs 26.65cr towards liablity to clients.

c) rs 1.65 cr to the company and rs 17.5cr towards liablity to clients.

d) rs 1.65cr to the company and rs 25cr towards liability to clients.

Q6. CD is promissory note issued by Bank and Financial Institute. That is part of?

A) CRR only

B) Both CRR and SLR

**C) Neither CRR nor SLR**

D) SLR only

Q7. Car comprehensive loan is 1.5 lakh. Deducted 5000 from insurance. The car is damaged for an amount of 60 k with 10k accessories he forgets to declare it. Insurance he gets 30k. What will be the claim he will get.

a) 50k, and 5 k

b) 45k and 15k

c) 50 k and 10k

d) 45 k and 10k

## Prakash said

Thanks a lot Prashant for sharing it. While i work on it on my own Is it possible to highlight the answer as well for me to cross check.Will look forward more set of questions from others as well.

Best regards,

PRakash

## pulkitbshah said

If anyone have insurance planning practical sums than upload it in this blog with solution and so as i am appearing for the insurance planning exam it will be helpful for me in the exam

## Darshan said

Prashant sir can u answer question 2&7 for me in detail.

## Darshan said

Sir I m going to appear for the insurance module in 10 days time can u tell me what questions are asked for 3&4 marks I mean which topics are tested in this area ?

## Yash Pandya said

Hi darshan,

I am done with the solution of second

20 yrs 15 yrs

1 -13672 -13672

2 -13672 -13672

3 -13672 -13672

4 26328 26328 =(200000*.2)-13672

5 -13672 -13672

6 -13672 -13672

7 -13672 -13672

8 -13672 -13672

9 26328 26328 =(200000*.2)-13672

10 -13672 -13672

11 -13672 -13672

12 -13672 -13672

13 -13672 -13672

14 26328 26328 =(200000*.2)-13672

15 -13762 0

16 -13672 0

17 -13672 0

18 -13672 0

19 -13672 0

20 -13672

310000 187500

irr=7.76460% 6.5423%

S.A Rev bonus Final bonus

20yrs=(200000*.4) +((200000/1000)*50*20)+((200000/1000)*150)= 310000

15 yrs=((200000*(15/20))-120000)+((200000/1000)*50*15)+(((200000/1000)*150)*15/20)=187500

With 15 years of investment, the actual return received was 6.5423% and with 2 years of payment rate is 7.76460%,

Thus by we can calculate marginal increase in rate by ((1.077646/1.065423)-1)*100=1.147243865%

Option A

## Darshan said

Thanks hash for the solution. Also try to get answers for 1,4 & 7

## udaycfp said

Dear Yash,

how u get 187500/- my ans comes 202500

in 15 yrs soln

pls help me out

## Kandarp Mehta said

1 -13672 -13672

2 -13672 -13672

3 -13672 -13672

4 -13672 -13672

5 -13672 -13672

6 26328 26328

7 -13672 -13672

8 -13672 -13672

9 -13672 -13672

10 -13672 -13672

11 26328 26328

12 -13672 -13672

13 -13672 -13672

14 -13672 -13672

15 -13672 -13672

16 190000 26328

17 4.80% -13672

18 -13672

19 -13672

20 -13672

310000

5.95%

1.15%

## R Varadarajan said

In the case of Money back Policies, should the death occur during the policy tenure full Sum Assured is payable even though survival benefits have been paid already. Hence the cash flow in the case of (first option) year 16 would be 200000*20%+200000+200*50*15-13672 = 376328. Hence IRR in this case would be 12.01%

## Darshan said

Is the answer of question 3 is 14 months?

## pulkitbshah said

Any one please solve and 4 and 7 sums not able to solve the sums

kindly provide me the solution and also upload some new sums for practice of insurance planning who has given the exam

## Darshan said

Hi pulkit can u share the solution for 1 & 5

## Darshan said

Hi Prashant Sir,

I cleared the Insurance Module Today.

## Prashant Shah said

Dear Darshan,

Many congratulations!!

Regret for the delayed response.

Prashant.

## shraddhasoni said

hi darshan

can you please tell me which book or material did you study for your insurance module ..and where did you refer practical sums from ?

## Vani said

HI can any one please solve the problem 1 & 4

## Mitali said

please give sol for que 1

## Jasbir singh said

Dear Mitali,

we can solve this sum like this way…

Construction

2006 cost 10,000,000

2012 Cost = 10,000,000*(1.1^6) [ Escalation in cost for 6 years]

Furnishing

2008 Cost = 10,000,000*(1.15^4) [ Escalation in Cost for 4 Years]

Add Both value You will get your Ans

## Mitali said

thanks alot..

## akash singhal said

Can anybody give the answer for Q7?

## cfp said

Car damage is 60k (damage of 50k+10k accessories). Deductible is 5k, so total insurance benefit is reduced to 55k.

so the answer will be 45k and 10k.

Prashanth please conform if the above analysis is correct

## Deep said

i think insurance claim is not given on car accessories unless if it thef.

## bhawnapearl said

Hi prashant sir,

Could you please provide detailed solutions to the questions above.I’ll soon be writing the exam for risk and insurance planning.it would be of great help if you could share in more questions.Thanks

## Prashant Shah said

I too don’t have solution of Q-4. Rest I will try to post asap.

Regards

Prashant.

## rahulmj08 said

Hello sir, this is rahul new to this forum. last week i cleared my RPEB module in a single comment, now i’m preparing for insurance module need your help regarding which topics that i need to focus.

Regards

Rahul MJ

## Prashant Shah said

Hi rahul.

Great to hear that u cleared tougher module. As far as insurance is concerned u may start reading IC33 first. Grab basics and I will guide u for the rest.

Regards.

## jyoti1752 said

Hello sir

I am preparing for insurance module rest of three i have completed, which book should i prefer for general insurace

## Prashant Shah said

No specific book but u may download CA institute ‘s general insurance book. Search on google. If u don’t find, let me know. I paste the link.

Regards.

## jyoti1752 said

sir you please paste here , i didn’t find.

## Anu said

hello sir plz provide me solution for the question no. 4

its urgent sir plz reply asap.

Regards

Anu

## Prashant Shah said

Regret to say that i too dont have answer of the question.

## Akanksha said

Hello Prashant sir

In 15 days I am planning to give my risk analysis and insurance planning exam.can u pls guide me some important questions and sample papers

## rahulmj08 said

Hi akanksha,

RAIP can be cleared if your good enough in theortical part, cover units or chapters as much as you can, practice sample questions of fpsb. I would recommend you to refer fpa books or institute books to cover syllabus

Regards

Rahul MJ

## Akanksha said

Hello Prashant sir,

Can u pls guide about module 1 I.e introduction to financial planning.how v have to study dis module as 20marks question will b asked in each exam.what are important notes in this module.Sir pls guide me

## Prashant Shah said

Module 1 has 20% weight. Questions related to ethics, practice guideline economics and general questions related to finance are asked.

## Akanksha said

Hello Prashant sir,

I have cup books of 2012.is it ok if I study from those books or there is any change in portion

## Akanksha said

Hello Prashant sir,

I have cfp books of 2012.is it ok if I study from those books or there is any change in portion

## khyatee said

I just want to confirm the ans of que 5….is it 26.65 cr

## khyatee said

sorry i think its d) rs 1.65cr to the company and rs 25cr towards liability to clients. Can ny 1 plz help me out?

## Mukund said

Thats the correct answer.

## Krishna said

can anyone tell me how req amount of 189000 in question 3 came from??

## Gurunadh said

Hai Friends, plz give me the solution for the below problem

An industrialist started a project on 1st nov 2009 with own capital of rs 1crore. He arranged a project of rs 1.5crore by a back on 1st july 2009 at a rate of 12%p.a. the terms of finance were quarterly invested.only payments up to six quarter and the repayment of premium in three equal installments from the end of seven quarter along with interest on the loan outstanding.he infuced fresh own funds towards working capital of rs 20 lakh on 7th december 2009 and rs 30 lakh on 4th november 2010.the project completed with a profit of rs 4.5crore on 6th september 2012.find the return generated by the project…

a)22.59%p.a.

b)30.16%p.a.

c)30.57%p.a.

d)32.37%p.a.

## soniya said

Hi, sir plz give answer for que-5 & 7

## Kandarp Mehta said

1 -13672 -13672

2 -13672 -13672

3 -13672 -13672

4 -13672 -13672

5 -13672 -13672

6 26328 26328

7 -13672 -13672

8 -13672 -13672

9 -13672 -13672

10 -13672 -13672

11 26328 26328

12 -13672 -13672

13 -13672 -13672

14 -13672 -13672

15 -13672 -13672

16 190000 26328

17 4.80% -13672

18 -13672

19 -13672

20 -13672

310000

5.95%

1.15%

## Sanchit said

How did you get 190000

## Prashant Shah said

Dear Sachit,

I hope you are aware about the concept of reversionary bonus.

here in this case the same is 50/1000 * 200000 *15 = 150000

you will also have money back at the end of 15 year i.e. 40000

Total is 1.9 lakh.

Regards,

Prashant.

## Sanchit said

Q1. A client’s 20 year money back policy of sum assured rs 2 lakh has annual premium of rs 13672, Policy pays back 20% of s.a after each of first three 5-years survival periods and another 40% of s.a on surviving full term. The client has received the third money back. You estimate the gross returns presently in the policy considering reversionary bonus of rs 50 per thousands s.a. you compare the cost benefit if the client pays all premiums and survives the policy and also gets rs 150 per thousand s.a as loyalty bonus. you conclude that _________.

a)the overall return improves marginally by 1.15% p.a

b)the additional in flow on 5 future premiums would amount to over 19% p.a returns

c) the additional in flow on 5 future premiums would amount to nearly 30% p.a returns

d) the additional in flow on 5 future premiums less opportunity cost would amount to nearly 12%

Q.2 An industrialist started a project on 1st nov 2009 with own capital of rs 1crore. He arranged a project of rs 1.5crore by a back on 1st july 2009 at a rate of 12%p.a. the terms of finance were quarterly invested.only payments up to six quarter and the repayment of premium in three equal installments from the end of seven quarter along with interest on the loan outstanding.he infuced fresh own funds towards working capital of rs 20 lakh on 7th december 2009 and rs 30 lakh on 4th november 2010.the project completed with a profit of rs 4.5crore on 6th september 2012.find the return generated by the project…

a)22.59%p.a.

b)30.16%p.a.

c)30.57%p.a.

d)32.37%p.a.

Is there any one shot answer to any of these questions??

And kindly give the details solution also..

## Prashant Shah said

Dear Sachit,

Solution for question 1 is already available. It has been solved many tines answer is A

And there is something missing in question 2 and hence I have not solved it.

Regards,

Prashant.

## Sanchit said

Yes but I still not get 190000 for 15years. Please help me out in it..

And in second question I’m stuck with dates to calculate XIRR function.

Besides is there any more questions can made available on insurance planning similar to these questions

## Vimal said

Thanks Prashant Sir and other for this active blog, it has greatly helped me clear my Insurance module with B grade.

## Prashant Shah said

Dear Vimal,

Great job. Many congratulations..

## muskaan said

can you let me know what topics did you study and sums you have solved from this blog to clear your exam?

## muskaan said

please asap

## kunal said

hey there !

i am kunal , done with question number 1 and 3 but find unable to solve the rest of the problems. is there anyone who can help me to solve the problems which i could not.

## kunal said

qst 1.

A) for Rs 2 cr.

2012-2006=6 year

20000000*1.10^(6)

B) for Rs 3 cr.

2012-2008=4 year

10000000*1.15^(4)

whatever value comes in section A or B,

will be added with each other.

Ans is 5.29

## kunal said

in section B i write 3 cr bydefault it must be 1 cr. rest is correct.

Ans 5.29 (d) option.

## kunal said

GAS- Rs 900000

30%- 270000

30%- 270000

40%- 360000

GAS- Rise by 20% 1080000

30%- 270000

30%- 270000

40%- Rise by 5% 378000

Total – (270000+270000+378000)= 918000

(1080000-918000)=164000 (savings)

household expenses is accumulated for 6 month for liquid fund-

378000*6/12=189000

for liquid reserve = 189000/164000*12= 14 month.

## kunal said

it must be 162000 not 164000, calculation mistake.

## G.sandeep said

Sir, please help me Q.no 4

## DOLLY said

PLEASE HELP ME WITH THE SOLUTIONS

I HAVE MY EXAM AFTER 3 DAYS

A MANAGER HAD A PEAK LIFE COVER AT AGE 35 OF RS 2.5 CRORE FIVE POLICIES EACH OF RS 50 LAKH. HE DID NOT CONTINUE ONE POLICY WHEN 40 , HAVING MET SOME OF HIS GOALS AND FINANCIAL LIABILITIES . HE IS 45 NOW . HIS FINANCIAL PARAMETERS ARE RS 80 LAKH AT CURRENT COSTS TOWARDS OUTSTANDING GOALS OF HIS CHILDREN IN 5 YEARS , INFLATION LINKED LIVING EXPENSES FOR HIS FAMILY , RS 41000 PER MONTH NOW FOR 10 YEARS AND HALF OF SUCH EXPENSES FOR NEXT 35 YEARS FOR HIS SPOUSE. HIS CURRENT FINANCIAL ASSETS ARE RS 62 LAKH. CONSIDERING EXPENSES AT 6.5% PA AND INVESTMENT RETURN 9% PA, YOU REVIEW HIS LIFE COVER AND ADVISE THAT _______

– HE REQUIRES COVERS OF RS 2.64 CRORE TODAY, HE SHOULD CONTINUE ALL POLICIES AND IF POSSIBLE INCREASE THE COVER

– HE REQUIRES COVERS OF RS 2.64 CRORE TODAY, HE MAY SURRENDER ONE TERM POLICY OF RS 50 LAKH

– HE REQUIRES COVERS OF RS 1 CRORE TODAY, HE MAY SURRENDER TWO TERM POLICIES OF TOTAL COVER RS 1 CRORE

– HE REQUIRES COVERS OF RS 1.73 CRORE TODAY, HE SHOULD NOT SURRENDER ANY POLICY AT THIS STAGE

## NAVEEN said

OPTION C.

LONG EXPLANATION, NO TIME NOW.

CALCULATE PV FOR GOALS, LIVING EXP AND DEDUCT THE CURRENT ASSETS.ANSWER WILL APPROX 1CRORE

## sai said

can anybody provide detail solution for question no.07

## Prashant Shah said

Dear Sai,

Question is not full but looking at the data what I feel the answer should be is B.

Regards.

## sai said

Thanks for your reply sir and in option B why accessory claim is 15000 but in question said that accessory insurance is 10000, please clarify me sir.

## sai said

Hi Prashanth Sir,

Could you please provide me answer with reason for question no.5

## Nanda Gopal said

PLEASE HELP ME WITH THE SOLUTIONS

I HAVE MY EXAM AFTER 3 DAYS

A MANAGER HAD A PEAK LIFE COVER AT AGE 35 OF RS 2.5 CRORE FIVE POLICIES EACH OF RS 50 LAKH. HE DID NOT CONTINUE ONE POLICY WHEN 40 , HAVING MET SOME OF HIS GOALS AND FINANCIAL LIABILITIES . HE IS 45 NOW . HIS FINANCIAL PARAMETERS ARE RS 80 LAKH AT CURRENT COSTS TOWARDS OUTSTANDING GOALS OF HIS CHILDREN IN 5 YEARS , INFLATION LINKED LIVING EXPENSES FOR HIS FAMILY , RS 41000 PER MONTH NOW FOR 10 YEARS AND HALF OF SUCH EXPENSES FOR NEXT 35 YEARS FOR HIS SPOUSE. HIS CURRENT FINANCIAL ASSETS ARE RS 62 LAKH. CONSIDERING EXPENSES AT 6.5% PA AND INVESTMENT RETURN 9% PA, YOU REVIEW HIS LIFE COVER AND ADVISE THAT _______

– HE REQUIRES COVERS OF RS 2.64 CRORE TODAY, HE SHOULD CONTINUE ALL POLICIES AND IF POSSIBLE INCREASE THE COVER

– HE REQUIRES COVERS OF RS 2.64 CRORE TODAY, HE MAY SURRENDER ONE TERM POLICY OF RS 50 LAKH

– HE REQUIRES COVERS OF RS 1 CRORE TODAY, HE MAY SURRENDER TWO TERM POLICIES OF TOTAL COVER RS 1 CRORE

– HE REQUIRES COVERS OF RS 1.73 CRORE TODAY, HE SHOULD NOT SURRENDER ANY POLICY AT THIS STAGE

Reply

## Santhosh said

PLz comment answer of 5th question and how to solve