IPTM1400 - Types of insurance policy used for investment: unit linked policies

A unit linked (or investment linked) policy is one in which the benefits are determined by reference to the value of a collection of investments which are broadly identified and to whose fortunes the return is linked. Typically, this will comprise a portfolio of equities, bonds and, perhaps, real property. Investment linked policies’ returns may also be determined by reference to a specified investment, or to an index.

This arrangement might be thought of as similar to owning units in unit trusts or shares as direct investments, but legally the position is quite different and this is reflected in the tax treatment. There is a contractual relationship between the policyholder and the insurer. The policyholder’s entitlement is governed by that contract, according to such events - death, maturity or surrender whole or partial - as the terms provide for. The sum payable may, subject to the nature of the event, depend on the value of the linked investments, but their nature and value is not directly relevant to the tax charged on the policyholder.