equity-linked policy

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An insurance or assurance policy in which a proportion of the premiums paid are invested in equities. The surrender value of the policy is therefore the selling price of the equities purchased; as more premiums are paid the portfolio gets larger. Although investment returns may be considerably better on this type of policy than on a traditional endowment policy, the risk is greater, as the price of equities can fall dramatically reducing the value of the policy. With unit-linked policies, a much wider range of investments can be achieved and the risk is correspondingly reduced.

Subjects: Financial Institutions and Services.

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