Unit-linked Life Insurance

Where from? Life insurance companies, life insurance brokers and other investment advisers.

How they work Depends on the type of plan. The structure of the plans is the same as for with-profits policies ), but instead of earning bonuses, your money is used to buy units in one or more investment funds - rather like a unit trust (see above). The price of the units reflects the value of the underlying investments and can go down as well as up. Different funds specialise in different investment areas and you can usually switch part or all of your money from one fund to another (though there may be charges and restrictions on the amount moved or left in each fund).

Minimum investment Varies - for example around £40 a month for regular saving and £4,000 for a lump sum.

Maximum investment Usually none.

Tax Same as for with-profits policies ).

Good for Regular savings plans are good for higher rate taxpayers who can commit themselves to regular saving. Single premium plans are good for higher rate taxpayers who've used up their capital gains tax allowance, and for people who want to switch investment area frequently while keeping a spread of investments.

Bad for Basic rate and non-taxpayers can usually do better with unit or investments trusts, as can anyone who has unused capital gains tax allowance. Regular savings plans are bad for anyone who can't commit themselves to regular saving.

WARNING With all investments involving a managed

fund - for example, unit trusts and unit-linked life insurance - check what charges will be made and how they'll be levied before you invest. And watch out with life insurance plans - there are often extra charges such as a policy fee, capital units bearing higher yearly charges, reduced unit allocations, and surrender penalties if you cash in early. At present, it's hard to make much sense of the list of various charges that apply to unit-linked life insurance. Under new rules proposed under the Financial Services Act, the overall impact of charges for unit-linked life insurance plans will, from January 1990 onwards, have to be shown as a proportion of the amount you're investing.

WARNING Life insurance plans also provide some life

cover, but usually this is minimal with an investment-type life insurance such as the type described above. If you need life cover, it's an expensive way of getting adequate cover. Don't choose these plans, choose protection-only (term) insurance - it's much cheaper 104 for details) - and sort out your investment needs separately.


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Unit Trusts

Where from? Unit trust managers or through banks or investment advisers.

How they work Buying units in a unit trust is a relatively cheap way of spreading your money and risk across a range of shares and other investments. Instead of buying shares directly, you buy units in a fund of shares (and possibly other investments) which is run by professional fund managers. The value of your units rises and falls as the values of the underlying investments rise and fall. Your return is usually made up of two parts: income and capital gain (or loss). The income may be distributed to you at regular... see: Unit Trusts


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