How is fund-based commission payable to an insurance intermediary in relation to a unit-linked bond recovered by the life company?

Fund-based commissions for insurance intermediaries who sell unit-linked bonds are typically recovered by the life company through increasing the annual fund charge. This approach allows the insurer to cover the commission costs over the life of the investment product rather than upfront, which can be advantageous for both the company and the policyholder.

By increasing the annual fund charge, the insurer ensures that the costs associated with funding commissions are spread out over time, and this charge is directly tied to the investment performance of the bond. As the policyholder’s investment grows or is managed over the years, the fund charge adjusts accordingly, impacting the overall returns of the investment but aligning the interests of the insurer with ongoing management and servicing of the policy.

In contrast, reducing the allocation rate means less of the initial investment goes into the fund itself, which can negatively affect the client’s immediate investment growth. Reducing or increasing the annual fund charge would not cover commissions effectively, and making an annual encashment would disrupt the investment and not be a standard practice for recovering commission costs.