The offer says “guaranteed”: guaranteed by whom, for what amount, and what about the bonuses and maturity?
Guaranteed capital, technical rate, annual and terminal bonuses, smoothing, market value reduction, education plans, a lump sum or an annuity: what each word really means. An educational text, recommending no product.
In short
A guarantee is given by the insurer itself, on the policy’s terms; it is not a state guarantee, and it often applies only at maturity or on death, not necessarily on an early surrender. Ask what exactly is guaranteed, when, and what happens if you leave earlier.
- On your offer, mark the guaranteed and the projected amounts in different colours.
- Ask for the table of surrender values by year and keep it with the policy.
- If you have a with-profits policy, keep the yearly bonus statements; the terminal bonus is not known until the end.
- Before a maturity, ask in writing what payment options you have.
From the series “The questions you are afraid to ask”, part “How it works”: questions real people ask, with honest answers.
At a glance
- A guarantee is given by the insurer, on the policy’s terms. Ask what exactly is guaranteed, when, and what happens if you leave earlier.
- An annual bonus, once added, is normally not taken away. The terminal bonus is not known until the end.
- In the illustration, anything above the guaranteed amounts must be shown at three rates and stated to be a model (Article 227 of Law 38(I)/2016).
- With with-profits policies you receive an annual statement on profit-sharing. Keep them.
The reassuring word, and the small print
The word “guaranteed” is one of the most reassuring in an offer. And many people hesitate to ask “guaranteed by whom?”, so as not to seem suspicious. Yet it is the most sensible question. A guarantee always has three elements: who gives it, for what amount, and on what conditions. Here we explain the terms you meet in guaranteed, with-profits and savings plans, without recommending any of them.
Guaranteed by whom?
The guarantee in an insurance policy is given by the insurer itself; it is not a state guarantee. It applies on the policy’s terms, often only at maturity or on death, and not necessarily on an early surrender. If a life insurer is wound up, the law provides that life policies are not cancelled automatically and that policyholders’ claims have priority over its assets. Since 2024 there is also a Life Insurance Guarantee Fund; its payment limits are set in a separate agreement that we could not find, so we do not quote an amount. Ask the Insurance Companies Control Service for the current limits.
The terms, one by one
| Term | What it usually means |
|---|---|
| Guaranteed (technical) rate | A minimum rate the insurer uses for the guaranteed amounts. It does not mean that everything you pay grows at that rate, because cover and costs come out first. |
| Annual (reversionary) bonus | Added during the term; once declared, it is normally not taken away. |
| Terminal bonus | Paid at maturity, sometimes also on surrender. It is not known in advance. |
| Smoothing | Part of the good years’ returns is held back to support the weak years. |
| Market value reduction (MVR) | A cut on an early withdrawal after poor returns, so that those leaving do not take more than the investments are worth. |
| Guaranteed and projected amounts | Guaranteed amounts bind the insurer on the policy’s terms. Projected amounts are examples, not a promise. |
Education plans, a lump sum or an annuity
A savings plan for a child’s education usually has a parent as the insured person and payer, and pays out at a set age of the child, as a lump sum or in instalments. Many plans also include cover for the parent: if they die, the insurer may continue the payments or pay an amount, depending on the terms. This is not automatic; check it before you sign. At maturity, some policies offer a choice between a lump sum and an annuity, meaning regular payments; an annuity can have a guaranteed period, so that if you die early the beneficiaries continue to be paid for the rest of that period.
How to compare with a deposit, without anyone selling to you
- The same time span. Compare over the same horizon, for example until the studies begin, not over one year.
- What you get besides saving. A policy may include life cover or waiver of premium; a deposit does not.
- Flexibility. What it costs to take the money earlier in each case.
- Who guarantees what. Deposits have a deposit guarantee scheme up to a limit; a policy has the policy’s guarantees and the legal protections for life insurance.
- Tax. Life premiums may give tax relief within limits (7% of the sum insured and the overall cap of 1/5 of income), but an early surrender can claw part of it back. Ask a tax adviser about your own case.
Whether a savings policy suits you is not for an article to decide. A licensed advisor judges it, and must give you a written suitability statement for any insurance-based investment product (IDD Article 30).
Your questions, one by one
What is a “reversionary bonus” and can it be taken away once added?
It is an amount added to the policy during the term, usually each year. Once declared, it is normally not taken away, but it may be paid in full only at maturity or on death. On an early surrender you may not get all of it. Read what your terms say.
What is a “terminal bonus” and why can’t anyone tell me its amount in advance?
It is paid at the end and depends on the returns of all the years. That is why it is not known in advance, nor guaranteed. If an offer shows it, it is an example, not a promise.
What does “smoothing” mean in a with-profits fund?
The insurer holds back part of the good years’ gains to support bonuses in the weak years. So values move more smoothly than the markets. Smoothing is not a guarantee and has limits.
What is a “market value reduction” and why might it cut my payout if I leave early?
It is a cut that can be applied on an early withdrawal, when the investments are worth less than the value the policy shows. The aim is that those leaving are not paid at the expense of those staying. Ask whether your policy has such a clause and when it does not apply, for example at maturity.
The offer says “guaranteed capital”. Guaranteed by whom, and on what conditions?
By the insurer, not by the state. It usually applies on a set date, for example at maturity, and if the conditions are met, for example all payments made. Ask in writing exactly what amount is guaranteed, when, and what happens on an early exit.
Is the guarantee valid only at maturity, or also if I surrender early?
Many guarantees apply only at maturity or on death. On an early surrender the surrender value applies, which can be lower. The table of surrender values is part of the pre-contract information; ask for it.
What is a “guaranteed interest rate” (technical rate) on a savings policy?
It is a minimum rate the insurer uses to calculate the guaranteed amounts. It does not apply to the whole premium, because cover and costs come out first. Ask what amount it applies to and for how many years.
What is the difference between the “guaranteed” and “projected” figures in my offer?
Guaranteed figures bind the insurer on the policy’s terms. Projected figures are examples at three rates, which the law requires to be stated as a model with no contractual claim. Plan with the guaranteed figures and see the rest as a possibility.
How does a children’s education savings plan usually work — who pays, who receives, when?
Usually the parent is the policyholder, insured person and payer, and the amount is paid at a set age of the child, as a lump sum or in instalments. Who receives the money is set by the policy and the beneficiaries. See also our children’s education guide.
If the parent paying a child’s savings plan dies, do the payments stop or does the plan continue?
It depends on the plan. Some include cover that continues the payments or pays an amount, so that the goal stays in place. Others simply pay the value that exists. Ask in writing before you sign.
What is the difference between a lump sum at maturity and receiving it as regular payments (annuity)?
A lump sum gives you the whole amount and the responsibility for managing it. An annuity gives you a regular income, often for life, but usually cannot be changed afterwards. Ask what options your policy has and how each is taxed; the tax side needs a tax adviser.
What is an annuity, and what happens to the money if I die soon after it starts?
It is regular payments bought with a capital sum. In a basic annuity, if you die early, the payments stop. That is why there are options such as a guaranteed period or an annuity for two people, with a lower payment. Ask what is provided.
What is a “guaranteed period” on an annuity?
It is a minimum number of years for which the annuity is paid, even if the annuitant dies earlier. The rest of the period goes to the beneficiaries you named. The payment is usually a little lower for this protection.
Single premium or regular premium — how do the two ways of paying a savings policy differ?
With a single premium, you pay one large amount once; with regular premiums, you pay gradually. The costs and exit terms differ. With a single premium, the law allows the refund on withdrawal within the 30 days to be reduced by losses from market falls.
How do I compare a savings policy with simply keeping money in a bank deposit, without anyone selling me anything?
Compare over the same horizon, using guaranteed rather than projected figures, and add what else the policy gives, for example life cover. Look at what an early exit costs in each case. For what suits you, ask for a written suitability assessment.
Where do I see the bonus that was added to my with-profits policy this year?
In the annual statement on profit-sharing, which Cyprus law requires the insurer to send. If you did not receive it, ask for it in writing. Keep the statements of all the years together.
My savings policy matures when markets are down. What options do people usually have?
It depends on the terms: some policies allow an extension, a deferred payment or a move to another fund. Guaranteed amounts, if any, apply at maturity. Ask in writing a few months before and discuss the options with an advisor.
What is a “guaranteed annuity rate” in an old pension or savings policy?
It is a commitment in some older policies to convert the capital into an annuity on pre-set terms. It can have value, so do not give it up without checking. Ask the insurer whether your policy has such a term, and what you lose if you transfer or surrender.
Questions worth asking in writing
- What amount exactly is guaranteed, on what date, and on what conditions?
- Does the guarantee apply on an early surrender? What is the surrender value in each year?
- Is there a market value reduction clause, and when does it not apply?
- If the paying parent dies, what happens to the child’s plan?
- At maturity, what options do I have: a lump sum, instalments, an annuity, an extension?
What you can do from today
- In your offer, mark the guaranteed and projected amounts in different colours.
- Ask for the table of surrender values year by year and keep it with the policy.
- If you have a with-profits policy, gather the annual bonus statements; if any are missing, ask for them.
- Six months before a maturity date, ask in writing what payment options you have.
- For an old policy, ask whether it has a guaranteed rate or a guaranteed annuity rate before you change it.
What went wrong for others — and how to avoid it
- Someone believed the projected amounts were guaranteed. EU supervisors (EIOPA) note that hybrid contracts, which combine unit-linked, profit participation and partial guarantees, are harder to understand. Ask to be shown in writing which line of the offer is guaranteed.
- An early surrender paid less than the guarantee “said”. Surrender and its delay are complaint categories recorded by the Financial Ombudsman in Cyprus. Before you surrender, ask in writing for the exact amount, what is deducted and why, and ask what other options exist.
- An education plan stopped when the parent died, and the family only found out then. Cover for the parent is not in every plan. Ask before you sign, and keep the answer in the family folder.
Every policy has its own terms. What we write here is general information, not advice; for your own case, what your policy says applies, and it is worth confirming it in writing with your insurer.
This is education, not investment advice or a recommendation of any fund or product. Past returns do not guarantee future ones, and the value of an investment can go down as well as up. Which fund suits you is for a licensed advisor to judge, assessing suitability from your goals, time horizon, financial situation and tolerance for risk (Article 30 of the Insurance Distribution Directive, IDD). AVRASTRO is not an insurer.
Sources
- CyLaw — Law 38(I)/2016, Article 227 (information before a life contract; illustrations; profit-sharing statement)
- CyLaw — Law 38(I)/2016, Article 228 (right to withdraw from a life contract)
- CyLaw — Law 38(I)/2016, Article 324 (life contracts continue in a winding-up)
- CyLaw — Law 38(I)/2016, Article 324A (Life Insurance Guarantee Fund; limits set by a separate agreement)
- CyLaw — Law 38(I)/2016, Article 327 (priority of insurance claims in a winding-up)
- Insurance Distribution Directive (EU) 2016/97 — Article 30 (suitability)
- PRIIPs Regulation (EU) 1286/2014 — Article 13 (Key Information Document in good time)
- EIOPA — Consumer Trends fact sheet (unit-linked and hybrid products; EU)
- Wikipedia — With-profits policy (definitions; UK-centred, not Cyprus)
- CyLaw — Income Tax Law 118(I)/2002, Article 14 (deductions; 7% and 1/5; surrender)
- Cyprus Mail, 25 May 2024 — Complaints to the Financial Ombudsman on the up (insurance complaint categories)
Read also: Saving for the needs you cannot see yet · Your child’s education: saving and protection together · Children’s education guide · Surrender: why you get less in the early years · Can I lose my savings? · What if the insurer fails? · Term, whole of life, endowment, unit-linked: which is which? · How does a unit-linked policy work inside? · All the questions you are afraid to ask
