Nobody knows what the future holds and the rate of growth in investment values is one of the greatest unpredictables. So when trying to compare policies an estimate has to be used. This should be realistic in the sense that it reflects past experience (just as reversionary bonus rates should not be projected at higher than current rates). A rate of 7.6% p.a., which is less than some companies have achieved, is commonly used in illustrations. When you are quoted benefits at maturity for a unit-linked policy, always check the estimated growth rate. If a rate of 10% or 12% p.a. is being used, the figures should be taken with a pinch of salt. It is also important to ensure, when comparing one plan with another, that both incorporate the same estimated rate of growth.
Salesmen find it to their advantage to quote higher growth rates but they are in no way guaranteed and there is certainly no point in taking out a policy just because the quotation embodies a higher estimate. The factors that should determine the choice are as follows:
1. Which policy produces the highest maturity value on the same assumed growth rate after taking all fund charges into account?
2. Which policy embodies the most attractive investment funds with more promising investment prospects and management (based on past experience)?
3. Which policy is offered by a large and sound life insurance company?
Like conventional companies, unit-linked offices do not guarantee the surrender values of their policies. There is often a guarantee that the minimum sum to be paid at maturity will be the sum assured, but this itself may be as low as 76% of the premiums payable throughout the policy, so that it is not exactly a generous guarantee.
The surrender value and paid-up value of unit-linked policy are usually the same. Since the company builds its plans on the expectation that they will run to maturity, it usually exacts some penalty on surrender or termination of premium payments. A common method... see: Surrender Values