Types of whole-of-life assurance: Which type pays a guaranteed sum plus any profits made during the period between the policy being taken out and death?

• A. Non-profit
• B. Unit-linked policies
• C. With-profits
• D. Fixed

Answer: (D)

When assessing whole-of-life assurance, the key idea is whether the policy shares profits with the policyholder through bonuses. The type that does this is a with-profits (participating) policy. It pays a guaranteed sum assured on death, and in addition adds bonuses that come from the insurer’s profits. These bonuses can accumulate as reversionary bonuses and may include a terminal bonus at death, boosting the overall payout above the guaranteed sum.

Unit-linked policies, by contrast, invest premiums in funds and the death benefit typically equals the value of the fund units at death, with no guaranteed sum. Non-profit policies do not participate in profits, so there are no bonuses. Fixed policies aim for a fixed payout without sharing in the insurer’s profits.