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www.InvestmentGuide.co.uk Other forms of investment type Life Insurance
LIFE INSURANCE
(Also called Second Hand Policy)
You buy an endowment life insurance policy taken out by someone else who now wants to cash it in. The person who sells the policy to you gets more money than he or she would if it were cashed with the insurance company. The endowment policy normally has a fixed term remaining of from 10 to 20 years. You take on the commitment to save a fixed amount, usually monthly or yearly, for the rest of the term. In return the life of the person who originally took out the policy is insured for a fixed amount, a non-profit policy. If you buy a with-profits policy, profits called reversionary bonuses are added to the fixed amount. The rate of bonus can rise and fall but once a bonus has been added to a policy, it is guaranteed. The fixed sum insured plus any bonuses, (plus with most companies for with-profits policies a discretionary terminal bonus) are paid when the term ends or on the earlier death of the person who is insured. On unitised contracts which are now offered by many companies, the bonus is added to the unit price instead of the sum insured.
Who can invest Anyone.
How worthwhile Poor to good value for taxpayers depending on the company chosen for savings kept going for 10 years or more. These contracts may be of interest to older people who can't take out a good value policy direct because of their age or because of a pre-existing illness. Poor value if you don't keep saving until you complete the term. See Life Insurance With Profits Endowment
Minimum Around £20 a month.
Maximum None.
Suitable A mixture of a lump sum at the outset to buy the policy and then regular savings to keep it going..
Money back On maturity or the death of the person insured. You can stop saving at any time and take your money, the surrender value; or leave it paid-up in the policy. Alternatively you can sell the policy again,
Interest Variable. Based on bonus rate at the discretion of the life company.
Interest paid When policy matures or the person insured dies.
Tax The insurance company pays tax on the income and capital gains it makes which reflects in your bonus rate. There is capital gains tax on any gain you make on the proceeds. Policies issued on or before 13 March 1984 normally get tax relief on the premiums at a reduced rate.
Fees to pay Premiums usually include a policy fee (e.g. £2 a month) which make a £100 a month policy better value than a £25 a month one.
Passbook None. You will get the original Insurance policy and a document assigning ownership to you.
Children Unsuitable.
Risk The terminal bonus may account for a large proportion of the proceeds of a 25 year policy which makes with-profits a potentially risky investment as a terminal bonus can disappear overnight if the company decides to reduce or remove it. UK authorised insurance companies are covered by a 90% compensation scheme less 'excessive' benefits.
How to invest Ask a number of the specialist companies what they have available.
Where from Association of Policy Market Makers
Other forms of investment
type Life Insurance
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Last updated 29 September 2002