Review Life Cover

Some policies operate on a yet different basis. Instead of making an annual charge the company keeps the income from the investments of the fund. In return, it allocates a higher proportion of the premium to units. Thus it may say that it will invest 115% or 130% of your premium in units and keep all the income generated by the investments (if you are puzzled as to how the company can invest more than it takes from you each month, the answer is that it does not but it guarantees to pay you at maturity as if it had). There are two reasons why you should think very carefully before taking out such a policy. One is that the lack of income to reinvest, as mentioned earlier, is a severe handicap to investment growth. The other is that the system creates a conflict of interest between the policy­holder and the company. The policyholder wants the value of the units to grow while the company may be tempted to invest for maximum income, with damaging effects on investment growth.

This suggestion of careful consideration might with justification be extended to any unit-linked policy you are offered by a salesman who knocks on your door. Often, only one plan will be offered, and this may not always be good value for money. From a qualified insurance broker you will almost certainly have the choice of several policies offering good value for money.

Like conventional companies, unit-linked offices do not guarantee the surrender values of their policies. There is often a guarantee that the minimum sum to be paid at maturity will be the sum assured, but this itself may be as low as 75 % of the premiums payable throughout the policy, so that it is not exactly a generous guarantee. The surrender value and paid-up value of unit -linked policy are usually the same. Since the company builds its plans on the expectation that they will run to maturity, it usually exacts some penalty on surrender or termination of premium payments.

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This entry was posted on Friday, November 14th, 2008 at 8:35 am and is filed under Life Cover Review. 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.