I pay into a unit-linked policy every month: what really happens to each euro, and why can the value fall?

Part may go to charges and the rest buys units in the funds you chose. After that, units are cancelled for the cost of life cover and the other charges. Your value is the remaining units times their price.

It is the percentage of the premium that buys units. In some policies it is lower at the start, because that is where the initial costs of the policy are covered. Others invest the full amount from the start and charge if you leave early. Ask for the rate for each year.

At the moment of purchase, yes. But look at what charges are taken afterwards, for example a monthly policy fee or a management charge, and whether there is a surrender charge. The total cost shows in the KID’s “costs over time” table.

Usually it is the fund’s net asset value, after management charges, divided by the number of units. How often it is calculated, for example every working day or every week, is in the terms or the fund information. Ask where the prices are published.

The insurer sells you units at the offer price and buys them back at the bid price. The difference is called the spread and covers costs. Many products today have a single price and separate charges instead of two prices. Yours is shown in the KID or the terms.

Deals are done at the next price to be calculated, not the last one published. That way nobody buys or sells at a price they already know. That is why the exact result shows a little later.

Usually by cancelling units each month. The cost depends on the sum insured, your age and health, and these charges may not be guaranteed. In Cyprus, as across the EU, the price cannot differ by sex.

Because the risk of death, and so the cost of cover, rises with age. Also, when the unit price falls, more units are needed for the same amount in euros. Ask whether you can reduce the cover or take it separately, and what that would mean.

Three reasons can happen together: unit prices fell, units were cancelled for the cost of cover and charges, and in the early years a smaller share was invested. The annual statement usually shows all three. If you cannot see them, ask for a breakdown in writing.

Usually premium charges, a policy fee, a fund management charge, the cost of life cover, switching and surrender charges. You find them in the terms, the pre-contract information and the KID’s “composition of costs” table. You can also ask for an itemised breakdown.

Premiums paid is what you put in. Fund value is the units times today’s price. Surrender value is what you would get if you cancelled today, after any surrender charge.

With front-end charges, a smaller part of the premium is invested in the early years. With back-end charges, all of it is invested from the start, but if you leave early you pay a surrender charge. In both, an early exit usually costs.

Many policies allow it. A top-up may have its own allocation rate and charges, different from the regular premium. Ask for its terms in writing before you pay.

The units are how the value of your policy is measured; the assets themselves are held by the insurer. The law requires them to match the units and to be identifiable. In a winding-up, policyholders have priority; see our article on what happens if an insurer fails.

Often the death cover is a set amount, as long as the policy is in force and there are enough units for the charges. The investment value is usually not guaranteed. Some products have special guarantees at a cost; read what the KID says.

It depends on the policy. Some pay the higher of the two, others their total, others only the fund value. It is one of the first things worth asking, because it also changes the cost of cover.

It is an example of what could happen at different returns. Cyprus law asks for three rates and a statement that it is only a model, with no contractual claim. None of the three is a promise; the real result can also be lower.

In practice yes: if the units are not enough for the charges, the cover can stop. So before a withdrawal or a break in payments, ask how long the cover would last. The terms say what notice you will get.

Some policies add units after a number of years or at maturity. Whether it is guaranteed, and on what conditions, for example no break in payments, only the terms say. Do not count on it unless you see it written as guaranteed.

Usually the units are moved to another fund, and the terms say how and with what notice. You are often also offered the choice of another fund. Read any such letter carefully and ask whether the change has a cost.

Some policies allow it. Each withdrawal cancels units, and fewer may remain for the life cover. In Cyprus, a partial surrender can have tax consequences if you had relief on the premiums; ask a tax adviser.

It is the day the price is calculated and orders are carried out. Because of forward pricing and checks, an order may be carried out on a later day. Ask in writing which valuation date will be used and when you will be paid.