R.J.
Nash
Consultancy Ltd
Independent Financial Solutions
•
|
|
|
|
Many policies provide not only protection but also investment. The principle here is that the premiums that are paid in respect of the policy are invested in order to benefit the policyholder or other beneficiary at a certain point in the future. Endowments: These are a common form of investment policy which have been used mostly for mortgage repayment. Regular premiums are paid and when the term of the endowment expires a lump sum is payable. It should be noted that there are various types of endowment policies, such as Full With Profits, Low Cost, Low Start, Low Start-Low Cost for example, with only the Full With Profits Endowment offering a guarantee of the Sum Assured being paid at maturity date. All other types of endowment policy only guarantee the Sum Assured to be paid in the event of death and not maturity. The amount payable at maturity will depend upon investment returns and as such regular reviews should be undertaken to ensure the policy is on track to provide the sum assured at maturity. This is especially important if the endowment is being utilised to repay an interest only mortgage, where it is important to keep track of any shortfall which may be projected. Many Insurance companies write to policyholders to inform of any possible shortfall offering a traffic light system of green for no shortfall, amber for a shortfall and red for a major shortfall. If you have received one of these letters you should seek our advice to plan how to make up this shortfall in order to ensure you do not have a shortfall in provision when your lender requires you to repay in full your interest only mortgage. Whole of life policies: Policies that are with-profits give the insured the extra benefit of a bonus that is a share of the profits from the funds that the premiums have been invested in. How and where the premiums are to be invested is worth establishing if you are going to invest in a with-profits product, such as single premium insurance bonds for example. But as with all long term investments in the stock market or in interest bearing instruments it is important to stay with them for the medium to long term, ie, at least 5 years. That way the investment vehicle has time to build up and “smooth” the short terms ups and downs in rates of return. Some policies may also benefit from terminal bonuses if they are held for their full term. When choosing insurance products for investment it is important to be aware of what charges, fees or commissions may be attached to them and when profits and bonuses are added to the policies. Some for example will be heavily weighted with charges at the beginning of their policy life. For non with-profit investments, a fund or funds choice is made at outset and the performance of the stock market will generally dictate the performance of a particular fund on a daily basis and therefore reviewing the fund choice is essential to ensure performance is satisfactory. There is no smoothing of the investment with unit-linked investments as the funds are valued daily and as such the investment value is amended daily as per stock market conditions. In summary, life related insurances are all about what sort of benefits you want from them. If it is basic protection for loved ones if you die then the costs can be quite straightforward. For investment products inclusive of life assurance the terms may be more complicated but the long term returns can be worthwhile. It has never been easy to understand life assurance especially when linked to an investment element but it is an important ingredient in many people’s personal financial portfolio. |
|
|
