Tell me more about unit linked life insurance polices ?
Generally, unit-linked policies are aimed at producing investment gains and are designed for the investor who wants to accumulate capital over a period of several years. The level of life insurance cover per £ of premium is so much lower than that on term assurance that unit-linked policies are not suitable for providing family protection. Salesmen sometimes present packages consisting of a unit-linked policy and term assurance, which they try to sell on the basis of security and investment. Such packages should be examined carefully, both from the point of view of how the benefits compare with your needs and from the cost angle.
The investment attractions of the unit-linked life insurance policy can easily be demonstrated. Imagine you agree to pay a £l0 - a month premium on a unit-linked policy. The life insurance company may deduct £1 to provide life insurance cover to meet its expenses. The other £9 is invested in units. The price of these units embodies a further charge because there is a disparity of about 5% between the offer price and the bid price (the price at which the company will buy back the units when the policy matures). So the amount actually invested in the fund on your behalf would be £8.55. You can get tax relief on each premium at 17.5%, so that the net cost of each £10 premium is only £8.25. Your £10 a month is therefore buying you more investments than your net monthly outlay.
Most life insurance policies incorporate a more complicated charges structure. However charges are levied, the final value of the life insurance policy at maturity is determined by the growth in the value of the units. This depends partly on the skill of the investment managers but is determined to a larger extent by trends in the economy and the financial markets. Estimates of growth in unit value are always used in estimating maturity values for unit-linked insurance; it is important to remember that, just as reversionary bonus rates are never guaranteed, so neither are estimated growth rates.
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