M_F102_Unit-linked life contracts

Question 1

Unit Linked Product Features

Answer 1

Returns linked to investment performance of chosen fund

Savings and Risk Benefits

P/h share = number units * unit price

Charges deducted (from Premium or Unit Fund)

Protection benefits covered by risk charges in the non Unit Fund

Various charge methods to cover initial and renewal expenses

Surrender penalties can cover shortfalls (payment and expenses) on surrender

Maturity Value is usually (bid) value of units

Question 2

Charges deducted (from Premium or Unit Fund)

Answer 2

Protection benefits < Unit Fund covered by risk charges

Various charge methods to cover initial and renewal expenses

Surrender penalties can cover shortfalls (payment and expenses) on surrender

Question 3

Unit Fund =

Answer 3

Unit Fund = policyholder’s benefit:

Unit Fund = Premiums - charges + interest + top ups for guarantees or risk benefits

Question 4

Non-unit fund =

Answer 4

Non-unit fund = company’s “other” money

Non-Unit Fund = Charges - actual expenses - top ups for guarantees or risk benefits + capital injected - profits paid

Question 5

UL Consumer Needs

Answer 5

Generally lower cost than guaranteed conventional products

investment risk borne by policyholder but
maturity value generally not guaranteed

More flexible (tailor to affordability and savings/risk split)

Question 6

UL Insurer Risks and Capital Requirements

Answer 6

Low investment risk for insurer

lower guarantees as investment risk borne by policyholder

But can increase risk if give guarantees (maturity, surrender, etc)

Expense, withdrawal and mortality risk depends on nature of charges and whether guaranteed.

Charge and surrender penalty restrictions also governed by legislation and marketing information

Withdrawal risk driven by assets share vs benefit paid

Marketing Risk

Driven by reduced guarantees and policyholder education

Capital Requirements depend on product design

Premium frequency/allocation percentages/charges

Ability to take credit for future charges in reserves

Question 7

UL Expense, withdrawal and mortality risk

Answer 7

Expense, withdrawal and mortality risk depends on nature of charges and whether guaranteed.

Charge and surrender penalty restrictions also governed by legislation and marketing information

Withdrawal risk driven by assets share vs benefit paid

Question 8

UL Marketing Risk

Answer 8

Driven by reduced guarantees and policyholder education