Life Policy: Defer Payment of Maturity Value or Not?

DaveEv

Hi,

I have a unit trust tried to a life policy account that is investing in Scottish Widows OEIC. I have paid £20 a month into the account for 25 years, so its worth around £6000.

My last valuation showed it as £5,239 as the units are undervalued.

As its just coming up for maturity the life assurance vendor has asked whether I wish to defer the payment of the maturity value and covert it to a whole life policy or cash the policy in.

The go on to say that I can cash in at anytime and that the value will be value of the units at their bid price and the cashing in time.

So, my questions:
Is the value of the units going to rise in the near future?
The life insurance value of the policy is £3000, yet its cash value is now higher, however I believe if I leave it or if I cash it no income tax is due, correct?
If I keep it and the unit price rises, would that rise incur capital gains tax?

Would you suggest I should cash the policy or hold the policy in the hope that the units rise in price?

Dave

dunstonh

Is the value of the units going to rise in the near future?

You havent told us anything about the investment. So, we cant answer that.

The life insurance value of the policy is £3000, yet its cash value is now higher, however I believe if I leave it or if I cash it no income tax is due, correct?

Is it an OEIC or a life fund? You have used both references in your post and SW offer both types. The tax position is different with both versions.

If I keep it and the unit price rises, would that rise incur capital gains tax?

Need to know if its an OEIC or life fund.

Would you suggest I should cash the policy or hold the policy in the hope that the units rise in price?

There would also be the option of fund switch. If it was life funds, was the policy non-qualifying or qualifying? (that impacts on the tax position) Are you a higher rate tax payer or close to it?

Loughton_Monkey

If I had any investment that after 25 years of paying in £20 a month (£6,000) was going to 'mature' at less than I paid in, I would not dream of continuing it for 1 minute more than I needed to.

You do not pay income tax on Life Insurance policies. They are usually tax free, but can give rise to Capital Gains Tax under certain circumstances. But since CGT applies only over £10,100 a year, I cannot see any problem here.

As to whether your specific units (whatever they are) will rise in the near future, we normally use Tarot Cards for this (although I do know an IFA who uses tea leaves).