Life cover on a unit-linked savings plan is funded by which mechanism?

• A. Encashment of units.
• B. Additional premium, added to the normal monthly savings amount.
• C. Reduction in the unit price, before units are allocated to the plan.
• D. Deduction from the monthly plan fee.

Answer: (A)

In a unit-linked savings plan, the cost of life cover is funded from the investment fund itself by encashing units. This means a portion of the fund’s units is redeemed at the current unit price to generate cash that pays for the life protection. As those units are sold, the fund value falls and the remaining units represent the ongoing investment after the life cover cost is covered. This approach ties the life cover cost directly to the fund’s performance and avoids a separate premium payment. Other options would involve adding extra premiums, altering unit prices before allocation, or taking fees from the plan in other ways, which aren’t how life cover is typically funded in unit-linked plans.