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Moneyextra.com Dictionary
Unit linked insurance policies
Life insurance savings and pension policies can be divided into two categories. With-profits and unit linked. These two categories are simply different ways of adding value to policyholders. Savers in with-profits policies have the security of knowing that once bonuses have been added to their savings pot they cant be taken away. Unit linked policyholders know that if the investment performance of the insurer is poor they could find the value of their units - their investment falling in value. In unit linked policies the policyholders premiums are used to buy units in a fund run by the insurer. The policyholder can usually choose from a range of investment funds covering a spread of investment markets but usually including a managed fund an equities fund and a property fund. Unit prices for life insurance funds change daily in the same way that unit trust prices do. Both can be found quoted in the broadsheet newspapers including the Financial Times. As with unit trusts two prices are usually given. One is the offer price - at which the fund manager will sell units to you. And theres the bid price - at which the fund manager will buy units from you. The differential between the two is typically between 5 and 7 - its the way the fund manager makes his money! The value of the policyholders units is directly linked to the value of the underlying assets and so will fluctuate. Although the long term trend may be for the units to grow in value on a day to day basis the value of the units can fall. While unit linked insurance policies subject savers to a little more volatility than with profits policies they do offer some advantages. e.g. if you decide to surrender your policy you will know with certainty what youll receive - itll be the offer price. See Also Moneyextra.com Insurance Service latest rates . ©Moneyextra.com Moneyextra.com recommends you take independent financial advice before acting on any article 2009-02-17 00:00:00 © Moneyextra.com