Review Life Insurance Quote

The unit-linked life insurance plan offers the only real hope of keeping pace with inflation, but the big disadvantage is that the “unitised” pension starts at about half to two thirds the level of the level pension (because the latter is based on fixed-interest yields which are that much higher than the yields on shares or property).

A middle course is to take half the benefits as a level annuity and keep the rest in units, which may be the best choice of all. Another option now becoming more widely available with both with-profit and unit-linked schemes is to take a pension at a level lower than the annuity rate but higher than that of the “unitised” pension. The company anticipates a rate of growth (capital and interest combined) and builds this into its assumptions, thus allowing a higher rate of pension. Say it assumes a 4% growth rate. Then if the units grow at 10% the plan holder is credited with only 6%, the company keeping the rest; and if their value drops by 5% then this is further reduced to a fall of 9%.

Another alternative is to take a pension increasing by a fixed percentage each year. Companies will quote different rates of initial pension based on the “escalation” rate. The higher the rate proposed, the lower the initial pension will be, and so this alternative suffers the same disadvantage as the pure “unitised” pension.

Yet another option is to make the pension payable during the policyholder’s wife’s life as well as his own. Since women usually live longer than men, this will usually mean a reduction in the annual pension, the exact amount of reduction depending on the wife’s age relative to her husband’s.

Changing investment conditions have led to the popu­larity in recent years of with-profit single premium plans. Here the individual does not commit himself to anyone company or plan but simply “shops around” each year for the one with the most investment appeal. Most companies allow single-premium plans, but in some cases the minimum contribution is as high as £1,000.