CII Certificate in Insurance - Financial Protection (R05) Practice Exam

In the context of endowment policies, it is common for insurance products to include features that adjust the payout amounts based on certain conditions, including the age of the policyholder at maturity. A typical reduction in the payout for exceeding a designated age is often set at around 2%. This percentage is used to account for the fact that the insurer may have to manage the policy differently as the insured grows older, reflecting the increased risk associated with older age.

The application of this 2% reduction aligns with industry practice, balancing the insurer's need to manage risk while still providing a level of benefit to policyholders. This adjustment serves as an incentive for young policyholders to maintain their policies without delaying maturity, ensuring that the plan remains sustainable for the insurer as well.

Thus, recognizing that 2% is a standard and commonly encountered figure in such policies aids in understanding typical endowment payout structures and the considerations made by insurers in offering these products.