www.InvestmentGuide.co.uk
www.InvestmentGuide.co.uk Other forms of investment type Life Insurance
LIFE INSURANCE
Lump sum invested in a single premium life insurance policy linked to units in a fund of mainly UK shares. Some Equity Bonds are linked to a single unit trust or a fund of several trusts. The units reflect the value of the assets held in the fund plus the accumulated income. You can switch the investment link to a mixed, fixed-interest, money, property, international or any other type of fund offered by the same company without cashing the policy.
Who can invest Anyone.
How worthwhile Consider instead Investment Trust Personal Equity Plan or Unit Trust Personal Equity Plan as they have the same type of investment but are tax free. Otherwise consider instead Investment Trust Shares or Unit Trust Invested in UK Shares, unless you regularly use up your annual capital gains tax exemption. Unsuitable for non-taxpayers.
Minimum £500 to £5,000 usually £1,000.
Maximum None.
Suitable Lump sums.
Money back At any time or when you die. You get the current value of the units.
Interest Income is accumulated.
Interest paid When you cash the policy or die. You can choose to withdraw a certain amount each half-year; some-times yearly, quarterly or monthly.
Tax The life company pays tax at the same rate as a basic taxpayer would on this type of income; capital gains made by the life company are taxed at 20% - both usually reflect in the price of the units. With bonds linked to individual unit trusts, capital gains tax may be deducted from the proceeds of your policy before you get it, whereas had you invested directly it would usually fall within your individual annual exemption. The proceeds and all withdrawals come tax paid for basic and 10% taxpayers. Non-taxpayers and 10% taxpayers cannot reclaim the tax. Higher rate taxpayers pay extra, currently 18%, when they cash and on withdrawals over 5% a year or if they go on for more than 20 years or on death. Higher rate taxpayers may be be able to reduce the tax cahrge with top slicing relief.
Fees to pay Charges deducted from your investment are 5% to 10% (usually 5%) initially and usually ¾% to 1% yearly although trusts which the fund invests in may charge 1% to 1½% a year instead or in addition.
Passbook None. Insurance policy issued.
Children Convenient for a trust set up for children to avoid inheritance tax and probate.
Risk High. The value of the units goes down as well as up. UK life companies are covered by a 90% compensation scheme based on the current value of your units if the company fails. Do not invest in an overseas life company which is not authorised in the UK as your protection is less and your income or gain could be liable to UK basic as well as higher rate tax.
How to invest Fill in a proposal form from a life company.
Where from Many life companies.
Other forms of investment
type Life Insurance
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Last updated 29 January 2002