RL360 Quantum - Understanding Initial Allocation Periods, Initial Units amd Charges
All of these elements are described in the Quantum literature suite, but in this article we focus on how these apply to your Quantum policy in practical terms.
- When Initial Allocation Periods (IAP) apply
- How long IAPs last for and what happens during them
- The charges that apply to initial units created during an IAP
- The impact of making changes to your premium payments
- How initial units affect withdrawals and surrenders
Initial Allocation Period For RL360° Quantum
When you take out a RL360° Quantum policy there will always be a period of time at the start when your regular premiums buy “Initial Units”. We refer to this period of time as an “Initial Allocation Period”, and you’ll often hear it talked about as the IAP for short.
Your RL360° Quantum policy is made up of two different unit types, “Initial Units” and “Accumulation Units”. Your premiums will only start purchasing accumulation units once the IAP has come to an end. Both types of units have different charges that will apply.
Initial allocation period
|Always applies at the start of the policy||Purchased during the initial allocation period||Purchased after the initial allocation period|
|May also apply to premium increases||Higher charges than accumulation units||Lower charges than initial units|
|A policy surrendered within the initial allocation period will have no value||Value can't be withdrawn from the policy during the payment term||Value can be accessed during payment term|
RL360° Quantum Frequently Asked Questions
Why are there two different unit types and why are charges higher on initial units?
RL360° have a number of costs to meet when setting up a RL360° Quantum policy, including commission which is usually paid to your financial adviser upfront on day one. Commission is calculated based on the length of time you intend to pay premiums. Therefore the amount of commission RL360° is required to pay for a 25 year term is more than it would be for a 15 year term. In light of this the charges we apply to those units are higher than those we apply to accumulation units.
In your own mind it's worth thinking about initial units as a restricted part of the policy, and a pot of money that builds up early-on which is used to recoup the bulk of costs incurred by RL360° but spread over the life of the policy.
Accumulation units are generally speaking more flexible, their value can be withdrawn and have lower charges applied.
What is the initial unit charge?
There is a specific initial unit charge which applies throughout the premium payment term, but ONLY on initial units. The charge is 0.5% per month of the value of the initial units held. Here is a simple example:
Initial Unit charge
|Month 1||Total value of initial units at the end of the month 1 = $500
Initial unit charge = $500 x 0.5% = $2.50
|Month 2||Total value of initial units at the end of the month 2 = $1,000
Initial unit charge = $1,000 x 0.5% = $5.00
|Month 6||Total value of initial units at the end of the month 6 = $3,250
Initial unit charge = $3,250 x 0.5% = $16.25
|Month 12||Total value of initial units at the end of the month 12 = $5,750
Initial unit charge = $5,750 x 0.5% = $28.75
At the end of the payment term the initial unit charge stops and all remaining initial units are converted into accumulation units.
When does the IAP start and how long is it?
There is always an initial allocation period when you first take out a RL360° Quantum policy, and it will last for between 18-24 months depending on how long you intend to pay premiums for.
Initial Allocation Period Length
Premium Payment Term
Initial Allocation Period
|5 years to 18 years||18 months|
|19 years||19 months|
|20 years||20 months|
|21 years||21 months|
|22 years||22 months|
|23 years||23 months|
|24 years +||24 months|
Initial allocation periods can exist at other times during the life of your policy, examples would be where you have selected automatic premium escalation or chosen to increase your regular premiums at a point in the future.
What happens if the original premium is increased?
If you increased your regular premium, the increase amount would create its own IAP based on the number of years left to the end of the original payment term.
A RL360° Quantum policy starts with a regular premium of $500 per month for 25 years, and is intended to supplement income in retirement. The 25 year premium payment term has an IAP at the start of 24 months.
Regular premium increase 1
- After 5 years the premium is increased by $250 per month (now $750 per month)
- There are 20 years left of the original payment term
- Therefore the IAP that will apply to the extra $250 will be 20 months
Regular premium increase 2
- After another 2 years the premium is increased by $150 per month (now $900 per month)
- There are 18 years left of the original payment term
- Therefore the IAP that will apply to the extra $150 will be 18 months
Regular premium increase 3
- After another 3 years the premium is increased by another $100 per month (now $1,000 per month)
- There are 15 years left of the original payment term
- Therefore the IAP that will apply to the extra $100 will be 18 months
What happens if the original premium is reduced?
Regular premiums cannot be reduced during Initial Allocation Periods. The original regular premium, and/or subsequent increases, can only be reduced once their IAPs are complete.
The initial units purchased during an IAP and their charges do not change as the result of any reduction in the premium.
- Quantum policy paying $500 per month for 20 years - the IAP is 20 months
- IAP: 20 months x $500 = $10,000 of initial units purchased
- At month 21 the premium is reduced to $320 per month (the minimum allowed)
- The remaining 220 months x $320 = $70,400 of accumulation units purchased
Cumulative initial units
Cumulative accumulation units
Why doesn’t the initial unit charge reduce if the premium is reduced?
Each premium paid outside of the IAP purchase accumulation units only which are not subject to the initial unit charge.
The initial unit charge is deducted from the initial units already purchased in the policy and therefore the charge is not affected by the reduction in the premium.
Can I withdraw money from the initial unit value?
No. Withdrawals can only be funded by cancelling accumulation units from the policy. Remember the majority of initial units are primarily held to fund the costs associated with setting up the policy.
You do have the flexibility to withdraw money from the accumulation units, but the maximum amount you can take will be limited so that at least $8,000 (or currency equivalent) is left remaining in the policy (this value is taking into account initial and accumulation units).
Once the payment term is complete, all remaining initial units are converted into accumulation units and can be accessed at any time.
What would happen if the policy was surrendered during an initial allocation period?
You would get no money back from the initial units. This means that if you were paying $500 per month, your IAP was 18 months and you surrendered in month 17, you would lose the $8,500 paid to date.
What would happen if the policy was surrendered before the end of the payment term?
A surrender charge is deducted as a percentage of the initial unit value and calculated based on the outstanding payment term at the time the policy is surrendered. It does not apply to the value of any accumulation units held in the policy.
The longer the payment term you have left, the greater the percentage surrender charge.
Assuming a monthly premium of $500 and a payment term of 15 years, you decide to surrender your RL360° Quantum in full after exactly 5 years (60 months).
- Months 1 to 18 (IAP): $500 x 18 = $9,000 allocated to initial units
- Months 19 to 60: $500 x 42 = $21,000 allocated to accumulation units
- Total premiums paid during the 60 month period = $30,000
We’ll also assume that the policy value at the time of surrender is $38,000, split $10,000 in initial units and $28,000 in accumulation units.
- The surrender charge is 56.50%* of the initial unit value
- Initial unit value: $10,000 minus 56.50% = $4,350
- Accumulation unit value = $28,000
- Total surrender value = $32,350
*A full list of percentage surrender charges are provided in the RL360° Quantum Key Features document.
Why do you apply a surrender charge to the initial units?
The charges which apply to initial units over the full payment term of the policy cannot be taken when you surrender. Therefore in order for RL360° to recover its set up charges we must deduct a percentage equivalent to the charges we would have taken, had your policy continued until the end of the payment term.
- RL360° Quantum represents a contractual commitment to save money for a future goal over an agreed period of time, and when you stop or make changes to your commitment, this will have an impact on your policy
- An Initial Allocation Period will always apply at the start of your policy, when you will only purchase initial units for a specific period of time
- Initial Units have higher charges than Accumulation Units and cover RL360° set up costs, including commission paid to your financial adviser
- Initial Units are restricted and you cannot take withdrawals from them
- Initial Units will be subject to surrender charges throughout the payment term
"Ultimately a product like RL360° Quantum operates at its best when you commit to, and continue to pay premiums for, the whole of the premium payment term".
Thank you for taking the time to read this article, we hope you found it helpful and informative. Please do take the time to read our RL360° Quantum literature.