There are four main types of life assurance product available:
This is the most simple type of policy offering a fixed and predetermined benefit at the outset. The vast majority of protection policies, particularly Term Assurance are non-profit and do not have an element of investment.
Offering a fixed premium and a guaranteed minimum sum assured the premiums associated with this policy will be more than the premiums for non-profit policies. The extra premiums paid are used to secure the right to receive any distributable surplus by way of bonuses.
There are two main types of with-profit policy:
- Full with-profit policy
- Low cost with-profit policy
These policies are typically linked to funds investing in stocks and shares managed by the life company. Because the basis for the investment is stocks and shares the risk associated with these types of policy is considered to be higher as values of the investment fund can fall as well as rise. There is however the possibility that these funds will achieve a very good return if the fund performs well during the term of the policy.
Unit-linked policies are very commonly used not only for investment purposes but also for pensions and even for protection purposes.
Unitised with-profit policies
This type of policy attempts to fall somewhere between a with-profit policy and a unit-linked policy.
Premiums purchase units in a fund and the benefits paid out in the event of a claim depend on the number allocated in the fund and the bid price. Where this policy differs from a unit-linked policy is that unit prices increase by the addition of bonuses which cannot be taken away once they have been added.
This means that the value of the policy, if held until death or the end of the policy term, is guaranteed.