Allocating units John has a life assurance savings plan with a sum assured of €10,000 and a current encashment value of €8,560. The charge for life cover this month on John's plan will be based on WHICH amount?

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Prepare for the QFA Investments Exam 1. Study with flashcards and multiple-choice questions with detailed explanations. Enhance your understanding and succeed on your exam!

Multiple Choice

Allocating units John has a life assurance savings plan with a sum assured of €10,000 and a current encashment value of €8,560. The charge for life cover this month on John's plan will be based on WHICH amount?

Explanation:
The charge for life cover is based on the amount at risk, which is the sum assured minus the current investment value in the plan. The encashment value shows how much of the plan's value has already built up, and the insurer’s risk on death is the portion not yet funded by that value. So the monthly life cover charge equals 10,000 minus 8,560, which is 1,440. Hence the cost is based on 1,440.

The charge for life cover is based on the amount at risk, which is the sum assured minus the current investment value in the plan. The encashment value shows how much of the plan's value has already built up, and the insurer’s risk on death is the portion not yet funded by that value. So the monthly life cover charge equals 10,000 minus 8,560, which is 1,440. Hence the cost is based on 1,440.

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