Investment Types - Unit Linked Endowments
Unit Linked
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Unit Linked

Unit-linked policies are used within individual pensions, endowments, investment bonds and whole of life insurance policies. They can also be used as investments for both defined contribution and defined benefit occupational pensions. 

Investors pay into a unit-linked policy on a monthly basis and the majority of the payments are used to buy units in a managed fund at the prevailing market price. The rest of the premium will go towards buying life cover.

The number of units held will increase over the years as more premiums are paid and their value will change in line with the fund's performance.

Of course, this means that the value of the investment can fall as well as rise. So if things go well, the unit-linked policy can grow faster than a with profits policy. But on the flipside, investors can lose out.

Policyholders can often decide which funds they want to invest their premiums in and the fund's performance is reviewed at certain points. You may be able to then alter your level of payments if you wish to.

Unit-linked endowments are usually a way of saving to pay off a mortgage or other large loan.  You will pay the lender just enough to cover the interest while the investment in the endowment is expected to grow enough to cover the oriinal capital loan. The advantage of a unit-linked policy is that you may be able to use it to pay off the loan early. There will be no bonuses added to your policy so the value of your policy will be the encashment value of your units. When this matches the value of your loan you can cash it in.

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