Hi, I undertand that that sum at risk is (Sum assured - reserve at t) if death claim occurs at time t for non unit linked products. For United linked, if the value of unit fund increases, sum at risk reduces. Is that becasue of the increase in reserve? But sum assured increases as well at the same time if death benefit is equal to the value of the unit fund. I think I'm not quite clear with this. I really appreciate if someone can help.
I believe the concept of Reserves does not really go well with the Unit linked products. With Unit linked products, the main liability of the company is the value of the Unit fund and the difference between the SA and value of the fund (sum at risk) incase there is a guaranteed SA on death. If the SA is just the fund value then company just pays the value of the fund and there is no sum at risk in this case. I am not sure whther I understood your question correctly because if the death benefit is just equal the value of the Unit fund then the comapny is not at Risk at all as it just pays out the fund in case of the death.
This is assuming that there is a guaranteed death benefit that's greater than the unit fund. If the unit fund is payable on death then (ignoring any non-unit reserve and the possibility of actuarial funding) the sum at risk is zero.
Thanks alot, guys. I got it. Also could you please explain,"if the value of future reduction in allocation rate exceeds the value of the life cover on Sum at Risk, then there is a risk of selective withdrawl."? I could vaguely understand but not sure what exactly is 'the value of life cover on Sum at Risk." Thanks heaps again.
perhaps rephrase to "the value of the life cover, which is the sum at risk"?? It's basically saying if you're being charged more than the life cover you're getting is worth, then you might withdraw (if you're in good health). You'll get the unit find anyway and so your additional life cover is (S-UF) = sum at risk.
