If a unit-linked whole of life policy has a sum assured of €100,000 and an encashment value of €5,000, what is the sum at risk for that month?

In the context of a unit-linked whole of life policy, the sum at risk is the amount that the insurer would pay out in the event of a claim, taking into account the encashment value (also known as the surrender value).

The sum assured represents the total payout guaranteed by the policy upon the death of the policyholder, which in this case is €100,000. The encashment value of €5,000 indicates how much the policyholder could receive if they decided to surrender the policy for its cash value.

To calculate the sum at risk, you subtract the encashment value from the sum assured. Therefore, the sum at risk is €100,000 minus €5,000, which equals €95,000. This means that if the policyholder passes away during that month, the insurer will only have to pay out €95,000, as they would not have to pay the encashment value in addition to the sum assured.

This calculation reflects the theoretical payout obligation of the insurer, accounting for the value that the policyholder could withdraw or receive before death. Hence, the reasoning clearly identifies how the policy’s structure determines the true liability of the insurer.