In a Whole of Life (WOL) policy, how are the costs of life cover factored into the reduction in yield figures?

In the context of a Whole of Life (WOL) policy, the costs of life cover are excluded from the reduction in yield figures. The reduction in yield is a measure that reflects the impact of charges, such as administration and investment management expenses, on the returns of the policy. Whole of Life policies typically provide a guaranteed death benefit, and the inclusion of life cover costs affects the net return to policyholders.

However, when calculating the reduction in yield, these costs associated with the life cover aspect itself are not factored in. This is because the reduction in yield is primarily concerned with the investment performance aspects of the policy, rather than the insurance costs. This allows for a clearer understanding of what the policyholder can expect as an investment return, independent of the insurance costs that are integrated into the overall premium.

In summary, the life cover costs are not considered when deriving the reduction in yield, allowing the focus to remain on how the investment component performs after accounting for other relevant charges.