Why an equity-linked policy

You may at this point be wondering where the advantages of an equity-linked policy lie, and whether you should even consider buying one. This depends on the view you take of the future. During the past twenty or thirty years, as the purchasing power of money has fallen, ordinary shares have proved to be one of the best forms of investment to preserve the real value of money. If you consider that inflation is here in the long-term future, you should consider buying an equity-linked policy as a long-term investment - but the emphasis is on the word investment.

One of the main attractions of this type of investment is that you obtain income-tax relief on the premiums in exactly the same way as for other types of life assurance (see Section 6). Returning to our example of the man who pays a fixed premium of Do a month for an equity-linked policy, tax relief (assuming he pays tax at 6o per cent) amounts to £90, leaving £8.90 as his net cost. In our example, where .£100 was deducted by the insurance company to cover the cost of life assurance and administration expenses, you would thus be paying 6% whereas would be invested for you.

This example illustrates why these equity-linked policies are so popular among investors. If you were to invest in a unit-trust or ordinary shares alone, you would not under present legislation qualify for tax relief, so by combining your investment with life assurance you are not only buying shares at a discount, you are also obtaining life cover free of cost. Note that policies where only one premium is payable at the outset - single premium policies - do not qualify for tax relief, and the proceeds are subject to tax for those paying at a higher rate than the basic tax rate.

Because of their speculative nature, equity-linked policies are designed mainly for those without dependants or for those with money to spare. They are not suitable for old people with small savings or for young family men with comparatively large

financial commitments. You should, therefore, only buy an equity-linked policy if you have already made sufficient provision for your wife and children by the conventional life policies described in Section 6. Another point to remember is that, in with-profits contracts, the reversionary bonuses allotted can never be taken away; but with equity-linked policies you could, theoretically, find on the day you terminate your policy that the stock market was depressed. Equity-linked policies are not a substitute for the traditional whole-life or endowment assurance.


Why an equity-linked policy

Payroll Giving
It’s all very easy to organise.
Just ask the Personnel or the Payroll Department at your company and, if they already have a scheme, they will give you the relevant forms.  HM Revenue & Customs’ website has a list of Payroll Giving agencies and explains payroll giving in more detail.

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read on: Which policy? Things to think about

You may at this point be wondering where the advantages of an equity-linked policy lie, and whether you should even consider buying one. This depends on the view you take of the future. During the past twenty or thirty years, as the purchasing power of money has fallen, ordinary shares have proved to be one of the best forms of investment to preserve the real value of money. If you consider that inflation is here in the long-term future, you should consider buying an equity-linked policy as a long-term investment - but the emphasis is on the word investment.

One of the main attractions... see: Which policy? Things to think about