With profit WoL

[rlsrachaellouisesmith]

Good morning,

In the tutorial handout Ex 1 question 2 the reasons in the solution appear to be the answers for a WoL assurance with no specific comments around why a with profit WoL would be chosen. I would expect that affordability would be a reason to choose, or not choose, a with profit version, as premiums tend to be more expensive. I would also expect the level of risk aversion to impact the choice. Are there any other things that might impact the choice?

Thank you,

Rachael

 

[Mark Willder]

Good morning,

In the tutorial handout Ex 1 question 2 the reasons in the solution appear to be the answers for a WoL assurance with no specific comments around why a with profit WoL would be chosen. I would expect that affordability would be a reason to choose, or not choose, a with profit version, as premiums tend to be more expensive. I would also expect the level of risk aversion to impact the choice. Are there any other things that might impact the choice?

Thank you,

Rachael

Hi Rachael

Thank you for your comments on the tutorial handouts. I agree that the solution should say something about the contract being with-profits and we will add something next year.

Affordability and risk aversion are really reasons not to buy with-profits, so I would probably cover these for a without-profits contract instead.

For with-profits I would say that the contract has more investment freedom, and so can offer higher expected returns. The assets chosen will generally offer a real return. We can then link this back to the reasons to buy whole life assurances, eg a high real return will help to match the inheritance tax bill and will provide a larger expected transfer of wealth.

Best wishes

Mark

 

[rlsrachaellouisesmith]

Thank you Mark, that is great.