What does the 'breakeven point' refer to in a unit-linked savings plan?

• A. The projected encashment value first exceeding total paid into the plan
• B. The early encashment charge no longer applying
• C. Bonus units being added to increase plan value
• D. Exit tax being deducted from the plan value

Answer: (A)

In a unit-linked savings plan, the 'breakeven point' refers to the stage at which the total encashment value of the investment surpasses the total amount that has been contributed to the plan. This is significant because it indicates that the policyholder has begun to recover their initial investment, spending, and potentially see growth in their savings.

As policyholders contribute premiums over time, these amounts are invested in various units that can fluctuate based on market conditions. The breakeven point is an essential milestone, as it helps individuals understand that their investment is starting to yield returns, which can be a motivating factor for long-term savings. It also highlights the importance of patience in unit-linked plans, where value accumulation may take time due to market variability.

The other options, while relevant to the context of a unit-linked savings plan, do not specifically define the breakeven point. Early encashment charges are a factor when withdrawing funds before a certain period but do not indicate when a policyholder begins to recover their initial investment. Similarly, the addition of bonus units and the handling of exit taxes pertain to the overall management and financial implications of the plan but do not define the breakeven point itself.