3. COMPARING PRODUCTS AND PROVIDERS
3.1 What Must Be Compared?
3.1.1 Surrender Values
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Only products with an investment element acquire a surrender value.
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This means that policies such as term assurance, IPI (non-unit
linked) and personal accident do not acquire surrender values.
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Those policies that do have an investment element will only acquire
a surrender value once premiums paid exceed the setting up expenses.
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Even when expenses have been covered, any surrender value will
be low initially because of:
- Ongoing policy expenses
- The need for the investment element to grow
- Ongoing risk premium expense i.e. the cost of the insurance.
This would be particularly noticeable under a unit linked whole
of life policy, where the life cover/investment balance might
be changed. The higher the life cover, the lower the investment
element, and the slower the surrender value build up.
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The essential point to bear in mind is that early surrender could
mean little or no return of premiums. The longer the investment
element has to grow, the greater the figure is likely to be.
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Any comparison, therefore, must take into account general management
expenses, policy expenses and investment performance.
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