Fee products are ones where most of the insurance company profits are derived from asset management fees charged to the policyholder.
In these products, the investment risk is borne by the policyholder, so they're usually described as investment products.
There are two types of product which are worth flagging here.
Firstly, unit-linked policies. Here, the premiums are allocated to the policyholder's account value, and the value of this account rises and falls depending on the performance of the investment funds chosen by the policyholder.
The insurance company deducts asset management charges from this account value as its fee.
The death benefit in this policy reflects the account value at death, so is dependent on the investment performance of the funds.
To reduce the investment risk borne by the policyholder, these policies may offer a guaranteed interest rate or a guaranteed minimum death benefit. Also, because the insurance risk on these products is lower than for other types of policy, policyholders typically have some flexibility in the premiums that they pay each month, subject to a minimum amount to cover the cost of the insurance company providing guaranteed benefits.
It's worth noting that US universal life policies are similar to unit-linked policies, though the policyholder is typically credited with a market rate of interest of the performance of a specific index rather than being linked to a particular fund.
Managed funds. These are traditional asset management products where customers want to invest money to generate investment returns.
They can choose how much they wish to invest in the fund, and the amounts invested become assets under management. The insurance company will charge asset management fees, which are hopefully less than the investment returns generated each year.
Depending on the type of fund, the customer can either withdraw their investment or sell their investment when they want to exit.
Here, all the investment risk is borne by the customer and there are no guaranteed benefits.
