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Old 08-25-2011, 10:22 AM
rosesmary rosesmary is offline
 
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Smile Lump sum risk

Can someone please explain to me what lump sum risk is?
This is probably a stupid question but I am still a newbie in the life industry.
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Old 08-25-2011, 11:17 AM
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Gandalf Gandalf is offline
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You need to provide more context. Here are two possibilities, not the only two:
1. The policyholder may withdraw a large sum of money at one time, possibly when the market value of the assets backing the contract are less than the withdrawal value.
2. The policyholder may deposit a large sum of money into an existing contract at a time when current conditions are not as favorable as the contract's guarantees. (E.g., an accumulation product that guarantees to credit 5%, when current market interest rates are lower.)

"Lump sum risk" isn't a standard term, but those are two risks that might be described that way.
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Old 08-25-2011, 11:19 AM
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One specific variation on the first: some sort of annuity contract that normally would start making monthly benefit payments at an age like 65, but gives the policyholder the right to take all or a large part of his value in a single sum at age 65.
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