Unit-Linked Policies

[MindFull]

Hi All,

I know that this question or a variation of this question has been asked a few times but I really need to clarify the death benefits for a unit-linked plan. In my country, most UL plans have a death benefit that is equal to the value of the fund + a fixed death benefit. This death benefit is completely independent of the fund value. Based on the core reading, the value of the units cancelled for the mortality charge is the sum assured less the bid value. Just to be sure, is the core reading referring to a plan where the death benefit is the sum assured in excess of the fund value, ie, if the sum assured is 200,000 and the fund value is 150,000, then the company needs to find 50,000? I am confused based on the fact that the fund value must be paid to the policyholder so why would that be used as part of the sum at risk calculation?

Regards.

 

[Net Premium]

It sounds like the Core Reading is using a scenario where the death benefit is the maximum of a fixed death benefit guarantee and the fund value. The sum at risk is then the guarantee less the fund value. You have the fund value anyway and so would need to pay the excess out of your non-unit reserves.

Other quantities for the sum assured are possible. In your example, the sum at risk would equal the fixed death benefit, as they would pay this in addition to the fund value.