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LIFE INSURANCE
A commitment to save a fixed amount, usually monthly or yearly, usually for 10 years or more. After deduction of the company's charges, the remainder of your money is linked to the price of units in a unit trust or other type of fund (e.g. property, mixed, fixed interest) run by the life company.
Policies issued on or before 13 March 1984 normally get tax relief (at a reduced rate) on the premiums.
Who can invest Anyone in good health.
How worthwhile Poor to good value for basic and higher rate taxpayers for savings kept going for 10 years or more depending on the policy chosen. Very little basis for predicting in advance whether you will do well or badly 'Maximum Investment Plans' with lower charges may give potentially better value. Can be used to avoid inheritance tax if written in trust. Otherwise consider instead Investment Trust Savings Plan or OEIC Savings Plan. Unsuitable for non-taxpayers.
Minimum £10 to £100 a month.
Maximum None.
Suitable Regular savings.
Money back You get the value of the units allocated to you after 10 years, either when you choose or at an option or maturity date. Some plans allow you to withdraw a 'tax free' income after 10 years. On death there is usually a minimum guaranteed sum. You can stop saving at any time and take your money or leave it paid-up; either way in the early years you lose out heavily.
Inerest Variable. Income from the investments is accumulated.
Interest paid When you cash the policy or when you die.
Tax he 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% and this is reflected in the price of the units; some deduct capital gains tax from the proceeds. There is no tax on the proceeds but there can be extra tax for higher rate taxpayers, currently 18% on any gain made, if you cash a policy before 10 years or if it is a non-qualifying one.
Fees to pay Charges are made by the life company and deducted from your investment. Some companies charge less for higher premiums. It is impossible for a layman to compare charges because they are deducted in different ways.
Passbook None. Insurance policy issued. Unit valuation sent yearly.
Children Policies can be in trust for children to avoid probate and inheritance tax.
Risk Depends on the type of investment to which the policy is linked. The value of units can go down as well as up. UK authorised life companies are covered by a 90% compensation scheme based on the current value of your units.
How to invest Ask an independent financial adviser to recommend a few companies with the lowest charges and good investment managers.
Where from Many life companies.
Other forms of investment type Life Insurance
Last updated 26
March 2011.