Information On Life Insurance

It was stated at the outset that unit-linked life insurance involves the shifting of investment risk from the life insurance company to the individual policyholder. In the ordinary unit-linked life insurance policy the choice is limited to that of a single fund, and in the more sophisticated policies discussed above the investor also has the ability to switch from fund to fund as he chooses. The logical extension of this approach would be for the funds available always to be fully invested in their selected type of asset.

Thus a property fund would always be fully invested in property, an equity fund in shares, and so on. In practice, this does not happen and the investment managers of each fund attempt to improve its returns by altering its content, principally by varying liquidity (the proportion of the fund held in cash) and by altering the type of investments held (for example, switching a major proportion of a property fund from offices to shops or the majority of an equity fund from leading or “blue chip” shares to smaller or “second-line” shares).

Thus in choosing a fund the investor is making a double selection. He is choosing the type of asset preferred (shares, property, fixed interest securities or a combination of these) as having most investment appeal; and he is also choosing the investment manager who will manage the fund(s) for him. For example, during 1973/74 the stock market plummeted from an index level of nearly 400 to one of 146. Some investment managers sold a large proportion of their shares in 1973 and early 1974, and investors in their funds cashing in later in 1974 fared well relative to those who had invested in funds where no such action had been taken. Then in early 1975 the stock market suddenly soared to over 300. Those funds that had sold their shares could not buy them back quickly enough to prevent their funds’ performance being far below that of the fully invested funds over the period of the rally in share prices.

If you have any liabilities then you should always consider taking out life insurance. Life insurance is there to give you some peace of mind should the worse happen. Specifically for your mortgage a specific form of life insurance can be taken out. This is sometimes referred to as decreasing life insurance. This works by the amount of cover decreasing over the years the policy runs. The cover that is decreasing goes in line with the amount that is owed on the mortgage. The plan can last from anywhere between 5 years and 40 years and can be taken up to your 70th birthday. You can take your mortgage life insurance in a joint format if you want to or on a standalone basis. The joint cover works on a joint life 1st death basis where the policy stops after the first death of one of the parties in the contract.

This is all good advice if you have a repayment mortgage however some of us have interest only mortgages, if this is the case then a level term policy is best. If the amount of the mortgage is staying constant then you need your insurance to remain constant and not reduce. This wouls mean the outstanding liability would always be covered.