Insurance for Equity Linked Policies| Definition And Benefit

Insurance for Equity Linked Policies| Definition And Benefit

Life insurance premiums constitute a really large pool of funds. There are unit trusts, namely an association of investors, who would find it profitable or convenient to utilize the pooled resources, and savings, for investment in securities. In this respect, certain life policies are equity-linked in the sense that a large part of the premium (sometimes up to 9%) is pooled for investment. The remaining part is then used to provide, say a term assurance to the policyholder.

Those type of insurance is heavily influenced by tax regulations and budgetary changes. It is an area in which expert advice is greatly needed. Equity-linked – policies are sometimes called investment-linked life policies.

An equity-linked policy is an insurance security in which a section or the full premiums are invested in ordinary shares for the benefit of the benefiting parties of the policy.
The payoff of an equity-linked policy depends on the performance of the shares invested.
Unlike traditional life insurance policies, which provide a fixed benefit, the equity-linked policy transfers the full investment risk to the policyholder.
An equity-linked insurance policy is a contract that subsists between a policyholder and an insurance company that presents insurance and investment features of an association of investors who would find it profitable to make judicious use of the contributed resources and savings for investment.
In most cases, the policyholder pays either a single premium or a stream of periodic premiums during an accumulation phase. In return, the insurer guarantees a stream of periodic payments starting either immediately or at a future date.
For investors, equity-linked life insurance contracts allow them to participate in the equity market and offer higher returns than fixed annuity contracts. Moreover, they offer protection against downside shocks in the financial market through the presence of diverse guarantees.
The contracts generally imply a rather high level of financial risk that can be totally charged to the policyholder, in pure equity-linked contracts, or shared between the policyholder and the insurance company, in guaranteed equity-linked contracts.
In the first case, the insurance company acts as a mere financial intermediary, while in the second case, it has to set up suitable hedging strategies because the financial risk is of systematic nature and cannot be eliminated by sufficiently increasing the size of its portfolio.
In this contribution, we first describe, in general terms, the main characteristics of equity-linked products and their advantages with respect to other types of life insurance and investment contract

Benefits of equity-linked insurance policies

the following are the major benefits of an equity-linked policy

1. In the area of increasing life expectancies and the population facing the need for sustainable income, the demand for
guaranteed income after retirement offered by equity-linked contracts is important and very beneficial to the retiree in terms of taking good care of his household needs during retirement.

2. Profit Oriented: Equity-linked policy makes it easier for some group of investors to unite and pool their resources for investment which end up generating a huge income for them at the end of the investment period.

3. It encourages saving

4. Investment motivated

5. Equity-linked policies bring about unity and trust among the associated individuals to the contract.

6. Equity-linked policy perves a way for investment in ordinary shares for the benefit of the beneficiaries of the policy.


Equity-linked policies are most often called Investment-linked policies”. It is a life insurance contract whereby the proceeds of the contract are directly linked to the value of an investment portfolio, typically composed of units of one or more mutual funds and kept separate from the other assets of the insurance company.


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