Owen pays €250 each month to a unit-linked savings plan. Why does the number of units allocated vary each month?

• A. Life cover charges vary
• B. Unit price fluctuates in value
• C. Policy fee varies
• D. Exit tax may be deductible

Answer: (B)

The number of units allocated to Owen's unit-linked savings plan varies each month primarily because the unit price fluctuates in value. In a unit-linked plan, the premiums paid are used to purchase units in a fund whose value changes based on market conditions and the performance of the underlying investments.

When Owen pays €250, the number of units he receives is determined by dividing the amount of his payment by the current price of each unit at that time. If the unit price increases, fewer units will be allocated with the same €250 payment, while if the unit price decreases, more units will be allocated. This fluctuation in unit price is a fundamental characteristic of unit-linked products, which are directly tied to the performance of the investments they are linked to. Therefore, the value of the units and subsequently the allocation will vary according to market conditions, resulting in different amounts of units each month.