Which factor influences the premium payable for a €100,000 life assurance policy?

• A. The life assured's gender
• B. The current exit tax rate
• C. The current higher rate of income tax
• D. The anticipated investment return of the unit fund to which the policy will be linked

Answer: (D)

The anticipated investment return of the unit fund to which the policy will be linked significantly influences the premium payable for a life assurance policy because it directly affects the insurer's expectations regarding the performance of the policy. In a unit-linked life assurance policy, the premiums paid by the policyholder are invested in a fund that aims to grow over time, and the eventual payout depends on the future value of these investments.

If higher investment returns are anticipated, the insurer may be able to project a larger payout at the end of the policy term, which could lead to a lower premium since the insurer can afford to take on a lower upfront risk. Conversely, if the expected returns are lower, the insurer may need to charge a higher premium to ensure that there are enough funds available to meet the eventual payout obligations.

In contrast, factors like the life assured's gender, the current exit tax rate, and the higher rate of income tax may influence certain aspects of life assurance but do not directly affect the calculation of premiums in the same way that the anticipated investment returns do. For example, while gender can impact mortality risk assessments, the primary calculation of premiums in unit-linked policies is more closely tied to the expected performance of the investment funds.