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. Your life is insured for about the amount you invest to which profits or bonuses are added each year. On unitised contracts which are offered by many companies, the bonus is added to the unit price instead. The bonus rate can rise and fall but once a bonus is added to a policy it is guaranteed, but see Risk and Money back below. The bonds are likely to be better value the longer you hold them. They are sometimes issued as limited offers.
Who can invest Anyone.
How worthwhile They have been described as a half-way house between a building society and the stock market. The main snag about this type of investment is that it is very difficult to predict which company is likely to give the best return. An alternative would be to divide your money between a building society and Unit Trust or OEIC Index Tracker Fund. Unsuitable for non-taxpayers. Compare with Life Insurance Traded Endowment.
Minimum £250 to £5,000.
Maximum Varies. Maximum age79 to 99.
Suitable Lump sums. For regular savings consider instead Life Insurance With Profits Endowment or Life Insurance With Profits Flexible.
Money back The fixed sum insured plus bonuses plus possibly a terminal bonus is paid when you cash the policy or on earlier death. But the proceeds may be subject to a deduction called market value adjustment other than on death. Some make no deduction on 5th anniversary and every next 5th anniversary. There is also no deduction if you die or usually on 'income' withdrawals of up to around 5% a year of the amount invested. Others have a guarantee on the 10th anniversary. These guarantees may change depending on when you first take out a contract. Check with the company the current terms before you invest.
Interest Variable. Based on bonus rates at the discretion of the life company.
Interest paid When you cash or the person insured dies. You can withdraw a fixed amount usually a choice of yearly, half-yearly, quarterly. Sometimes termly 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% and this is reflected in the bonus rate. The proceeds and any profits are tax paid for basic rate taxpayers. Non-taxpayers cannot reclaim 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.
Fees to pay These can be a rip off. Be very careful. There may be an initial charge of 5% but also an "allocation" of between 95% and 104%, the better allocation for larger amounts. An allocation of 104% plus a charge of 5% in fcat means you are only being charged about 1%. But an allocation of 95% plus a 5% charge is a charge of 10%. Many companies make an extra charge if you cash within the first five years although this may be more likely with companies which have lower initial charges and higher allocations.
Passbook Statement sent.
Children Policies can be in trust for children to avoid probate and inheritance tax.
Risk 90% compensation scheme for UK authorised life companies.
How to invest See surveys in the press, e.g. Investment Life & Pensions Money£acts monthly. Or ask an independent financial adviser. A discount broker can save you the cost of the initial charge.
Where from Around 22 life insurance companies including AXA, CIS, Clerical Medical, Ecclesiastical, Friends Provident, Legal & General,Liverpool Victoria, MGM, Norwich Union, Prudential, Scottish Equitable, Scottish Widows, Standard Life, Wesleyan.
Other forms of investment
type Life Insurance
Contents
Last updated 20 June 2003