Life Insurance Guide | Insurance Help Product Information | Funds

Most offices offer a variety of funds to which a policy can be linked. The most common funds are as follows:

  • Equity (or Ordinary Share) Fund – invested in ordinary shares quoted on the Stock Exchange.
  • Fixed Interest (or Gilt) Fund – invested in securities which carry a fixed rate of interest, normally UK Government securities and local authority issues
  • Property Fund – invested in real property, usually commercial and industrial premises. However, because of the high capital cost of a single building, this fund will invest in other media, while it builds up enough capital to purchase a further building.
  • International Fund – invested in assets abroad, usually shares on foreign stock markets.
  • Cash Fund – invested in the short-term money markets such as bank deposits and Treasury Bills, usually to provide a temporary refuge for the investor who requires a high degree of security.
  • Index-linked Gilt Fund – invested in UK Government index-linked securities.
  • Building Society Fund – invested in Building Society deposits.
  • Many offices have also introduced specialised funds such as a Technology Fund, a Far Eastern Fund or a European Fund.

The fund with the best performance will vary over time. This has led to the concept of the Managed Fund, where the office’s managers invest in whichever of their funds they feel is best at any particular time.

An extension of this idea is the ‘switching facility’ offered by many offices. This facility gives the policyholder the option to switch his investment from one fund to another. For example, a policyholder with a policy linked to the equity fund could, if he wished, switch into another funds where he considers prospects to be better. A small charge may be levied for this service, but it does allow the investor to back his own judgement.

Obviously, the value of units can fall as well as rise and therefore it is possible for the policy to fall in value, unlike a conventional policy. Thus, while the potential yield of a unit-linked policy may be higher than that of a non-linked contract, the risks will usually be greater, though this is not the case with unitised with-profit funds.

Most funds are valued daily, weekly or monthly and the policyholder can regularly follow the progress of the investment, through unit prices published in the Financial Times and other leading newspapers and online sources. In addition, the life office will probably issue periodic statements showing the number and value of units allocated.