Unit-Linked Life Insurance
In unit-linked life insurance, the policyholder bears the investment risk directly, since the maturity benefit is tied to the performance of chosen investment funds.
Comparison profile
- Trigger
- Fixed sum insured
- Insured interest
- The biometric risk of death or survival, combined with the policyholder's direct participation in the performance of selected investment funds for capital accumulation purposes.
- Rating basis
- Age at inception, Guaranteed minimum death benefit level, Fund selection and allocation, Premium or contribution amount, Health declaration for the biometric component
- Typical limits
- The minimum guaranteed death benefit is typically defined as a percentage of premiums paid or of the account value; the maturity benefit has no guaranteed minimum and no cap, unless an optional guarantee rider is purchased.
- Target segments
- Private individuals seeking capital growth, High-net-worth investors, Retirement savers comfortable bearing investment risk
Insured events
- Death during the contract term
- Survival to the maturity date
Key exclusions
- Suicide within the initial contract period
- War and warlike events
- Investment losses on the fund assets (borne by the policyholder)
- Material misrepresentation in the health declaration
Concept
Unit-linked life insurance is a form of life insurance in which the policyholder’s premiums, after deduction of costs and the risk component, are invested in selected investment funds, so that the amount of the maturity benefit depends directly on the performance of those funds.
Allocation of Investment Risk
Unlike traditional endowment life insurance, where the insurer guarantees a minimum rate of return and bears the investment risk itself, in unit-linked life insurance the policyholder generally bears the investment risk directly; in return, the policyholder fully participates in positive performance of the chosen funds without being capped by a maximum guaranteed interest rate.
Separate Fund Assets and Segregated Assets
The assets underlying unit-linked contracts are managed separately from the insurer’s general segregated assets in a dedicated fund, subjecting the fund units to particular protection mechanisms in the event of the insurer’s insolvency; some product variants also offer guarantee components that promise a minimum benefit regardless of fund performance.
Comparison and delineation
Unit-linked life insurance is the investment-risk alternative to term life insurance, which offers no capital accumulation at all, and to traditional whole life/endowment insurance, which guarantees a minimum return but caps the policyholder’s participation in favourable markets. It suits policyholders who are willing to accept variable outcomes in exchange for full upside potential and typically lower embedded guarantee costs, whereas the capital-forming alternatives are preferred where a guaranteed minimum benefit is the priority.