Unit-linked funds – concept, operating mechanism and prospects for development

Abstract

This article analyses unit-linked insurance funds as complex financial instruments that combine protection and investment functions. The first part of the study presents their essence and definition, highlighting the place of insurance-linked investment funds within the financial system and their distinctiveness from traditional insurance and investment products. Their nature, which lies in combining insurance protection with the investment of funds in the capital market, is emphasised. The remainder of the article discusses the mechanism of unit-linked funds operation, with particular emphasis on the principles of premium allocation. Attention is drawn to the importance of investment policy and the investment risk borne by the policyholder. The concluding section of the study analyses the prospects for the development of unit-linked insurance products, taking into account customers’ growing financial awareness. It is pointed out that the future of unit-linked insurance products will depend on product transparency, the level of consumer protection, and the ability of financial institutions to adapt their offerings to the changing needs of the market.