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www.InvestmentGuide.co.uk Other forms of investment type Life Insurance
LIFE INSURANCE
A commitment to save a fixed monthly amount for at least 10 years. In return your life is insured for a fixed sum to which profits, called reversionary bonuses, are added every year. The bonus rate can can rise and fall but once a bonus has been added it is guaranteed. The fixed sum insured plus bonuses are paid (plus with some companies a terminal bonus) if you die or whenever you choose after 10 years. Some policies have to end after 20 to 25 years or when you reach age 65. On unitised contracts which are offered by many companies, the bonus is added to the unit price instead of ths sum insured. With life insurance you get better value by choosing the company rather than letting the company choose you.
Who can invest Anyone in good health usually up to age 50, 55, 60, 65 or 70.
How worthwhile Poor to good value depending on the company chosen, for savings you think you will need in 10 to 20 years time. Compare with a series of Life Insurance With-Profits Endowment which may be better value. Similar policies called whole life policies can be used in trust to avoid inheritance tax.
Minimum £10 to £25 a month.
Maximum None.
Suitable Regular savings.
Money back On death or at any time after 10 years. If you stop saving before 10 years, a heavy penalty is likely.
Interest Variable. Based on bonus rate.
Interest paid When you cash the policy after 10 years or when you die.
Tax The life company pays tax on the income and capital gains it makes which reflects in your bonus rate. There is extra tax for higher rate taxpayers if you cash a policy before 10 years or if it is a non-qualifying one. Make sure you are sold a qualifying policy.
Fees to pay The premiums may include a fixed policy fee (eg £2 a month) which make a £100 a month policy better value than a £25 a month one.
Passbook None. Insurance policy issued. Bonus statements normally issued yearly.
Children Policies can be in trust for children to avoid probate and inheritance tax.
Risk A cut in terminal bonus can seriously erode the return from your policy. UK authorised life insurance companies are covered by a 90% compensation scheme less 'excessive' benefits.
How to invest Ask an independent financial adviser to get details of past performance and financial strength from the best companies for your age, and to advise you on which companies are the strongest financially.
Where from An independent financial adviser or a life company direct. Some only issue whole life policies which are designed to pay out the best return on death, not if you cash them in.
Other forms of investment
type Life Insurance
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Last updated 28 March 2003