Information On Life Insurance

The non-profit life insurance endowment is a more popular type of contract. A growth bond guaranteeing 9% net would produce £1,538 from a £1,000 investment over five years. For the basic-rate tax­payer not subject to further tax this could be attractive. The pattern of interest rates is always shifting, however, so that it is not possible to predict how attractive the rates companies are offering at different times will be compared with the alternatives. The point is that the company is guaranteeing a rate over a period of years, whereas building societies and most other deposit-taking institutions do not guarantee a rate for more than a few months or a year at the most, except in special cases.

The income bond can be based on the combination of a deferred and immediate temporary annuity. Here the deferred annuity provides for the return of the original capital at the end of the period and the immediate annuity for the income. As noted above, the problem is that the deferred annuity proceeds are subject to basic-rate as well as higher-rate tax. But for the basic-rate taxpayer such plans can still produce a good return. Alternatively, the deferred annuity can be replaced by a non-profit endow­ment, in which case only higher-rate tax is payable on the gain at maturity.

In the case of these income contracts, the gain achieved in the capital return is the difference between the sum that is invested in the deferred annuity or non-profit life insurance endowment and its maturity value. The bulk of the single premium is required to produce the income payments via the annuity, and only a small proportion (depending on the term of the contract) is invested in the capital-producing portion.

Long-term life insurance income bonds for 10 to 15 years are available, and for some retired people these may be preferable to an annuity because they do guarantee the return of capital so that the investor retains control of it. However, there are normally no guarantees as to the surrender value if the investor wishes to withdraw early.

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