Information Life Cover

The differences between the results of cashing-in on a life insurance policy in any year are affected both by the market trend and fluctuations and by investment management decisions. The same 10-year £10-a-month policy linked to a unit trust could have produced £2,100 in 1973, but only £1,100 in late 1974 (and £1,800 in 1976). In anyone of those years the range between the maturity results of different unit-linked life insurance policies was even larger than that between the best and worst with-profit endowments over the same period. Part of this disparity is due to the different invest­ment aims of the different funds to which policies were linked and part to the relative abilities of their investment managers.

The fact that in 1976 a maturing policy linked to a unit trust which limited itself to investing in shares of investment trusts produced a far lower maturity value than one investing in high-yielding shares can be explained by the fact that over the latter five years of the policy period investment trusts shares rose in value at a far lower rate than the average for all shares. There was nothing the investment managers could do to alter that. On the other hand, the fact that two policies maturing in 1976, both linked to funds aimed at generating a high income, produced values different by 15% cannot be explained in this way, and the conclusion must be that one team of investment managers was more skilful than the other.

The phrase “rose in value” is itself a little misleading, and it is worth making a brief digression from investment management to explain it. The point is that it is not necessary for the level of investment prices (or, as we shall say, unit prices, as these reflect market prices) to be higher at maturity than at the start of the policy period for the investor to make a useful profit. What determines the amount of the gain is the relationship between the average price paid for units and the actual unit price on encashment.

With the majority of the life insurance contracts, if they be level decreasing single or joint they have something called terminal illness added into it. What it is this terminal illness ? I have a friend who has critical illness insurance on his life is this the same thing ?  Well the answer is no, terminal illness is added without cost and is where the insurer will pay out when the policy holders life expectancy is no greater than 12 months. The defintion is normally where the consultant or the chief medical officer is agrees that a rapidly progressing incurable illness is present. The idea behind the terminal illness is that the client will get the money before they die and this will give them an opportunity to sort out what ever they want to do prior to them passing away. The idea behind the cover is that the time when you are most vunerable a cash injection will hopefully help ease the pain.