Compare Critical Illness Insurance

The aim is to minimize risk by switching the proportion of money invested in the different sectors according to current conditions and the investment outlook. In practice, this is not as easy as it sounds, because, as we have seen, large blocks of property are not easily marketable and the same can apply to shares. Nevertheless, the spreading of invest­ments across a wider range of assets does provide some protection against extreme fluctuations in anyone sector.

These investment or “bond” funds have achieved their success largely as a result of their tax advantages, which derive from the tax position of critical illness insurance companies. The income from investments in the fund is taxed at the rates appropriate to critical illness insurance companies. That is at the basic rate of income tax on income from shares and at 37.5% on income from other investments. This income is not distributed, but is accumulated within the fund or “rolled up” to earn a greater return for investors.

For a higher-rate taxpayer this alone carries considerable advantages. If one is liable to income tax at 50% or 60% or even more, then the ability to “roll up” the income from an investment without any personal tax liability is extremely useful. Instead of investing in the normal way and paying the consequent rate of income tax, the income is auto­matically taxed at the lower rate within the fund. In the case of gilt-edged, for example, someone paying tax at 65% would get a net return of only 4.2% from a stock yielding 12% before tax. If the individual invested in a gilt fund, the fund would pay tax at only 37.5% and would have 7.5% after tax to reinvest for him. Over a period of years the reinvestment of income can produce sizeable investment gains.

While bonds therefore provide an advantage for higher rate taxpayers investing in income-producing media, they are not so efficient when it comes to capital gains. Critical illness insurance companies pay tax at 30% on realised profits. Critical illness insurance can indeed be useful.

Tags: critical illness, critical illness cover, critical illness insurance, critical illness quote

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