The TKM compresses costs into a single number – but if you also want to understand what's happening to your money, it's worth looking behind that number. Pension-insurance cost structures are built from a handful of recurring elements; understanding them also explains why an early exit is the costliest decision of all.
- The typical elements: acquisition cost (often in initial units), maintenance/administrative fees, an asset-based deduction, and a fund-management fee.
- Initial units carry a higher deduction on the first years' payments – which is why it's disproportionately expensive to exit in the early years.
- The costs live in the policy terms and the schedule of conditions – comparing them together with the TKM gives the full picture.
The acquisition cost and initial units
A significant share of designs record the payments from the first 1-3 years in a separate unit type – initial units – and apply a higher deduction to them over several years. This covers the costs of setting up the policy. The practical consequence: in the early years, the surrender value is typically well below the amount paid in.
This isn't a hidden trap – it's spelled out in black and white in the policy terms and the surrender-value table. But precisely because of this, it's true that pension insurance isn't a short-term product, and the premium should be sized so that you never need to dip into it early.
The ongoing deductions
During the term, three types of deduction are typically at work: administrative/maintenance fees (fixed items or ones proportional to the premium), an asset-based deduction (a percentage of the savings' value), and – for unit-linked forms – a fund-management fee, which shows up in the unit price. There can be separate items too: a fee for switching asset funds beyond the free allowance, the cost of a partial surrender, and the fee for making the policy paid-up.
The trick is that these fall on different bases – so they can't be added up in your head, which is exactly why the TKM is so valuable: it kneads all of this into one comparable number.
The other side of the scale
Set against the costs is the bonus side: loyalty and bonus credits which, as the term progresses – under conditions – hand back some of the early deductions (details). So the net picture is only complete when taken together: costs + bonuses + tax credit.
This is, again, the case for seeing a policy through: the beginning of the cost curve is loaded, the end is rewarded. Anyone who stays the course sees the design's best face; anyone who exits early gets its worst.
How should you ask about costs?
When requesting a quote, three questions are mandatory: what is the TKM for my term (with the range)? At what pace do the initial-unit charges release? What bonuses apply, and under what conditions? The full question list: the 10-point cost checklist and 5 questions before you sign.
I place the answers side by side in the comparison table – for me, the cost column is at the front of the table, not in the small print.
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