The correct answer is D. All of the above.
Traditional with-profit policies are a type of life insurance policy that offers a guaranteed death benefit, as well as the potential for additional bonuses. The bonuses are declared by the insurance company at the end of each year, and they are based on the company’s investment performance.
There are several disadvantages to traditional with-profit policies. First, the bonuses are declared only once a year, and they do not reflect daily fluctuations in the value of the assets. This means that the policyholder’s benefits can fluctuate significantly from year to year.
Second, the policyholder’s benefits depend on the assumptions and discretions of the insurance company. The insurance company has the discretion to decide how much of the investment income to distribute as bonuses, and they also have the discretion to change the bonus structure at any time. This means that the policyholder’s benefits are not guaranteed, and they can be reduced or eliminated if the insurance company’s investment performance declines.
Third, the bonus structure of traditional with-profit policies does not reflect the true value of the assets of the insurer. The insurance company uses a complex formula to calculate the bonuses, and this formula does not always take into account the true value of the assets. This means that the policyholder’s benefits may be overstated, and they may not be as valuable as they appear.
For these reasons, traditional with-profit policies are often considered to be less attractive than unit-linked insurance plans (ULIPs). ULIPs offer a similar death benefit, but they also offer the potential for higher returns, and the policyholder’s benefits are not subject to the same risks as traditional with-profit policies.