No. 907 - The cost differential between unit-linked policies and mutual funds

by Angelo Nunnari and Agostino Tripodi
February 2025
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The paper estimates the cost differential borne by subscribers between a sample of unit-linked life insurance policies placed in Italy and a direct investment in the same mutual funds underlying the policies. The analysis focuses on policies that have underlying funds available to retail investors as well. The differential is assessed by comparing the reduction in yield due to the costs of the two investments over horizons of 5, 10 and 20 years.

The cost of unit-linked policies is generally significantly higher than that of retail mutual funds, with differentials ranging from 0.5 to 2.5 percentage points per year. This is mainly due to the additional management fees applied by insurance companies compared with those charged by fund management companies. The differential is higher for policies distributed through financial advisors; it is lower, however, when the management company reserves fund classes for insurance companies with reduced costs compared with those offered to retail investors.

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  1. 03 February 2025
    No. 907 - The cost differential between unit-linked policies and mutual funds
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