Life Insurance Quote Reviews

In the conventional bonus systems we have been looking that the sum assured plays the central role in surplus distribution, which is achieved by additions to the sum assured. Since this sum is payable on maturity or earlier death, this does place certain investment constraints on the company, that always keep a watchful eye on mortality statistics and expenses at the same time as managing its investments. A number of people discovered that it was possible to detach investment from the protection inherent in the conventional with-profit policy through the use of unit linking.

A specific proportion of the premium (usually low) was earmarked to provide some life insurance cover, and the rest was invested in “units” in a fund or funds selected by the policyholder. At first, these were restricted to authorized unit trusts investing in the stock market, but later internal unitized funds of ordinary shares, property, fixed interest, etc.

While a minimum guaranteed life insurance is maintained throughout the policy’s life, it does not normally grow as cover does under a conventional with-profit policy. But the value of the investments, mirrored in the price of the units, will always provide a sum reflecting exactly the investment experience of the chosen fund. The policyholder in this situation does not need the calculations of the actuary to decide how the surplus is to be distributed because it happens automatically.

 At maturity, he simply receives the net value of all the units that his premiums have purchased over the years or the units themselves. Since this sum will relate very closely to the level of market values, whatever type of fund is involved, the policyholder is exposing himself to certain investment risks. Whereas the conventional system takes on the investment risk and spreads it over large numbers of policyholders and also over time, the unit-linked policy requires the policyholder to shoulder the investment risk himself, without the safeguards of the conventional company’s “smoothing operations”. But it is hence worth emphasizing again the difference in cost between pure protective life insurance and investment-oriented policies