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Investment and risk7.2 Life assurance investments - endowment policiesIn this section, we describe in detail, the structures, pricing, charges, uses and variations of endowment policies. These policies are defined as regular premium life assurance policies effected for a fixed term. They pay out on either matur...
Shortened demo course. See details at foot of page. ...n which case, they are classed as non-qualifying and the same tax implications arise as were discussed with investment bonds. The pricing of these investments does have to take account of the fact that they are a combination of a life assurance policy and a savings contract. Therefore, in each case consideration will need to be made of the costs of the life...
Shortened demo course. See details at foot of page. ...r, alternatively an initial allocation period where only a small proportion of the premium actually gets applied to the policy investment fund, annual management charges e.g. 0.75% - 1.5% of the value of the fund, exit penalties etc. With profits funds operate on the basis of providing an annual...
Shortened demo course. See details at foot of page. ...lue can go up and down at any time in line with market forces. Funds can be accessed at any point duri...
Shortened demo course. See details at foot of page. ...urrender values to be more or less nil. We have already discussed how life assu...
Shortened demo course. See details at foot of page. ...licy holder is a higher rate tax payer. Non-profit endowment assurance
These are the oldest form of endowment policy. Here the insurance company will offer to pay out a sum assured on death or later maturity which remains level throughout the term. No bonus or additional value will be added to the sum assured. These policies are not readily available on the market anymore due to the more attractive types of arrangements that have superseded them. With-profit endowment assurance With these policies, a basic sum assured is offered at outset, with the prospects of the addition of future bonuses. Proceeds will only be paid in full if the policy lasts the full term. The types of bonus added include: Annual bonus - allocated annually in arrears based on the profits of the fund Terminal bonus - paid at the end of the term or in the event of death or surrender. It is not guaranteed but will reward longer term investors for their loyalty with the fund. Low cost endowment assurance These policies are a combination of a with pr... Shortened demo course. See details at foot of page. ...come tax at a maximum of 20% on any gain arising.Sellers would not be subject to CGT on sale of a policy. For buyers, there is a possibility that they could be subject to income tax and capital gains tax. If a buyer holds a qualifying policy to maturity or a death claim, there will be no chargeable event and no resulting income tax liability. If however, the policy they hold is non qualifying, then on death, maturity or surrender a chargeable event will arise and the buyer will be subject to income tax on the difference between the amount maturity (or surrender) value and the total premiums paid by the buyer and seller combined. The buyer may also be subject to CGT as the claim is considered a chargeable disposal of a capital asset. Any taxable gain that arises on the difference between final value and total payments made for the policy (both original purchase price and subsequent premiums) can be reduced by the amount that has been subject to income tax under the chargeable event gain rules. |
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