Life Cover Listings

Some unit-linked plans have, however, introduced guarantees. Normally these involve a special fund which allows the company to guarantee a value at retirement age and hence an actual pension. Such guarantees are no different from the non­profit ones discussed earlier, and may be useful at ages close to retirement.

The unit-linked plans involve charges expressed slightly differently from unit-linked life insurance policies. The initial charge on units is normally 5% but may be higher, and the annual charge is between 1.5 % and 1 %. Many plans, however, also involve the allocation of capital units in the first one, two or three years, embodying an extra management charge of 3% or more.

As previously mentioned, this is not a once-for-all charge; it is an annual charge and means that 3% (or whatever) of the value of the relevant units will be deducted by the company each year the plan is in force. This can add up to a substantial amount over a long-term pension plan. The reason capital units are used is that under a personal pension plan the company is unable to make deductions from the fund if the plan is stopped by the plan holder (in the case of the life insurance contract it can do so via the surrender value). So to take account of “lapses” the company has to build into its charges an element that will recoup its costs. Nevertheless, some companies do not use capital units on personal pension plans, and their plans can often offer better value (capital units are not allocated when unit-linked funds are used on a single-premium basis).

At maturity, the unit-linked plan holder has the option of converting all his units into an annuity, in which case he gets a fixed level income for life (though he may also, if he takes a slightly lower annuity, have a guarantee that it will be payable for a minimum of 5 or 10 years whether he lives or not) or of keeping the units and drawing off an annual pension by selling some each year.

Tags: life insurance, life insurance cover, life insurance quote, term life insurance

This entry was posted on Friday, November 21st, 2008 at 12:17 pm and is filed under Life Cover. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.