Comparison Of Life Insurance Quotes

The average acquisition cost of units is determined by market movements and a principle called pound-cost averaging applies. This means that, because a given premium buys more units when prices are low than when they are high, over a period the investor acquires more units at lower than at higher prices and therefore his average acquisition cost per unit will be below the average unit price over that period. Pound-cost averaging is simply a mathematical fact of life, and, though it is comforting to know that it is working on one’s behalf in any regular investment plan, it does not alter the fact that it is the difference between the average acquisition cost and the unit price on encashment that determines the profit one receives.

The final unit price is subject to the fluctuations of the market, and as we have seen in recent years these fluctua­tions can be large and sudden. For this reason the majority of unit-linked life insurance policies contain one of two options: either the investor may defer taking the policy proceeds for a year or more (i.e. the policy continues in force with no more premiums payable) or he may take the units his premiums have acquired instead of the cash value. Either way, the intention is to allow the investor to ride out any fall in market prices so that he may encash his units at a better price. The ability to defer taking the proceeds is the better option, since the sum paid out will still be the proceeds of a policy and thus free of tax, whereas if the investor takes the units as the policy proceeds then any increase in their value from that point on creates a gain liable to capital gains tax.

To return to the theme of investment management, it is today widely recognized that to better the average trend in prices in any investment sector by a consistent 1-2% p.a. is a considerable challenge for any fund manager. Of course, most funds do achieve short-term bursts of performance.