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www.InvestmentGuide.co.uk Other forms of investment type Life Insurance
LIFE INSURANCE
(Also called Purchased Life Annuity)
Lump sum invested with a life insurance company which
usually cannot be returned. You receive a fixed income until you die. Better
returns the older you are. Options, but with lower income, include a joint-life
annuity where payments continue until the second death or one guaranteed to pay
for at least 5-10 years even if you die within that period.
A few
companies offer unit-linked and with-profits annuities where the
income depends on the performance of the underlying investments, the income may
go up or down. Annuities linked to the Retail Prices Index linked
annuities are also available. The initial income is often lower than with a
fixed annuity, for examples click here.
Who can invest Anyone but only suitable for over age 65 men, 70 women.
How worthwhile Designed to deal with the problem of outliving your capital. Because of possible inflation in the future, they are only worth considering if you are over age 70 men, 75 women. At age 70 a man can expect to live on average another 14.7 years and a woman 17.7 years. At age 80 a man has on average 8 years to go and a woman 10.5 years. The worldwide fall in long term interest rates has reduced the attraction of fixed rate annuities.
Minimum Around £10,000, otherwise charges reduce the return.
Maximum None.
Suitable Lump sums.
Money back Usually not possible. Surrender value, if available, is likely to be much less than the investment.
Interest Fixed or increasing at a fixed rate or increasing by the Retail Prices Index. Rates depend on how old you are when you start and vary according to the type of annuity. For instance for a purchase price of £10,000 with a fixed annuity a man of 65 might receive £860 a year, whereas one rising by 5% a year might initially receive £535 a year and one linked to the RPI £628 a year. Current rates surveyed in magazines, e.g. Life & Pensions Money£acts.
Interest paid Yearly, half-yearly, quarterly or monthly. By cheque to you or direct to bank account usually in arrears. Less income is paid for more frequent payment.
Tax The annuity payment is regarded as part return of capital and part investment income. Only the income part is taxed at the usual tax rates. At older ages most of the payment is tax free.
Fees to pay None.
Passbook None. Life annuity contract.
Children Unsuitable.
Risk UK authorised life companies are covered by a 90% compensation scheme less 'excessive' benefits. For complete safety use an old established company.
How to invest Get an independent financial adviser to obtain quotations for you or get your own from the companies below.
Where from 9 life companies for fixed annuities. RPI linked annuities: AXA Sun Life. Level annuities: Standard Life. With profits and investment linked annuities: AXA Sun Life, Norwich Union, Scottish Mutual, Scottish Widows. If you have been diagnosed as suffering from a serious disease you may get better value with an impaired life annuity from AXA Sun Life or or GE Life or Pension Annuity Friendly Society or Scottish Widows.
Other forms of investment
type Life Insurance
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Last updated 10 December 2000