Do unit linked life insurance policies do well ?
The majority of funds which do exceptionally well over a short period of, say, two years are likely to do less well than the average over the next 2 years. This does not alter the fact that, as we have seen, such short-term deviations have a very considerable influence on the amount an investor receives at any point in time. But it is important to recognise that these deviations are essentially unpredictable (especially when one is looking 10 or 20 years ahead). A consistently above-average performance of a fund (i.e. the consistent growth in unit value at above, and fall in unit value at below, the average rate for that market) will mean that there is a higher probability that the investor cashing-in his units at any point in time will receive more than the investor in a less consistent fund. It does not mean that he will always do better.
To some extent, it can be argued, the above distinction is academic, since few funds show such consistency. In practical terms, the important thing is to avoid funds that have done consistently worse than the average achieved by their competitors and those that are more risky. In the latter category come most “specialised” unit trusts, for example those investing overseas or in only one sector of the stock market. And there is also a good deal to be said for sticking to the larger unit-linked life offices and unit trust groups which have the most experience in the business.
Skilful investment management may add 1-2% p.a. to the performance of a fund (which would be good going by historical standards). Much of any such advantage could, however, be eaten up by extra fund charges, and so the level of charges embodied in any unit-linked contract deserves careful study. Unlike conventional offices, unit linked offices display these charges for all to see, though their effect on the investment may be less easy to calculate than at first sight appears. Life insurance can as well be a complicated subject to deal with.
Tags: life insurance, life insurance cover, life insurance quote, term life insurance