Unit linked insurance plans and investment bonds
Apart from the most popular and somewhat simpler forms of life insurance, the market has advanced over the years and designed various forms and combinations of the insurance policies that can meet a vast number of different needs. By paying for your life insurance, you are also presented with the opportunity to invest your money and receive a part of the profits. One of such plans is actually Unit Linked Insurance Plan.
Unit linked plans represent a combination of a mutual fund and term life insurance, where the person that invests is not actually involved in the plan profit but receives returns that are based on the returns of the chosen fund.
The premiums that are received by the insurance company are deducted by the distribution and initial costs and whatever is left can be invested in a fund.
The client is offered a choice of the available funds and he or she is actually capable of switching between them.
When talking about Unit Linked Ins, with profit policies are another thing that needs to be mentioned. We can differentiate between with profits policies and non profits policies. The first one is a type of mutual investment made to ensure the growth of the capital. With non profit policies, the client is offered a return which does not depend on the investment performance and success of the insurance company.
Another form of life insurance is pension that can be viewed as a form of investment bond as well. The difference is that while the general life insurance, health insurance and non pension annuity forms of business all include mortality risk for the insurance company, pension can be described as “prolonged existence” risk. It is a fund that is accumulated in the course of one’s working existence and at the certain point a person gets annuity contract, which vouches that the instalments will be received every months until the rest of a person’s life.
And what exactly is an annuity contract? This is a form of agreement that is divided into 2 periods where the first period is accumulation and the second one is annuitization. In the first phase, the person will of course make payments to the account, while in the second stage the insurance company will pay out. Finally, it is understandable that there are certain rules about money withdrawal, since the distribution can be either taxable or penalized.