Unit linked policies | Advantages and limitations

Unit Linked Policies path
Unit Linked Policies path

The unit linked policies are in the galaxy of the many insurance contracts of those mold finance. In them, the premiums paid are invested in mutual funds with diversified insurance interior called units. This type of policy does not guarantee a minimum level of performance. The end result is totally linked to the performance of these underlying internal funds. In rare cases the efficiency derived from this investment can be zero or even negative. Those who subscribe to this type of insurance have the right to choose the line management best suited to their risk appetite. The content of the unit linked policies can be equity, bond, balance, flexibility or consisting of cash.

Unit Linked Policies

Unit Linked Policies

In recent years the collection of internal funds linked to unit linked policies focused mainly on bond funds for several reasons such as the idea of ​​fixed income investors who think in order to protect as much as possible the capital. To get a better yield one must however opt for equity type funds. With unit linked policies the investor always has the ability to change the asset allocation or distribution of funds between the various asset classes. This change will not in fact burden tax. Tax on capital gains is paid only at the end of the contract and does not occur when there’s movements of the underlying funds. In fact, in the last few months with the loss of value of government bonds and other debt instruments, the industry has shown a trend to increase the equity component.

Unit Linked Policies path

Unit Linked Policies path

Here is a summary of the main limitations of unit linked policies. Their content mainly exposes the investor insured financial market trends and makes the insurance benefit uncertain. The unit linked policies then also have high costs. They see an accumulation of the costs of initial placement, those for the management of the underlying funds, the initial boots and possibly a penalty for early redemption. On the other hand, these products have the following advantages. They are undistrainable and exempt from inheritance tax.

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