Glossary: Unit-linked policy
Unlike with-profits policies where the life company determines the return, the performance of unit-linked policies is down to how well – or badly – the investments perform in the markets. Like a unit trust, your monthly payments buy units in funds managed by the insurance company. Unlike traditional with-profits policies, unit-linked endowment policies provide no guarantees as to what growth will be achieved, which means a unit-linked policy has both the potential for higher growth more quickly than a with-profit endowment, but also a greater risk of failure to meet investment objectives.
A collective investment vehicle (known in the US as a “mutual” or “pooled” fund) and similar to an Oeic and investment trust in that it manages financial securities on behalf of small investors who, by investing, pool their resources giving combined benefits of diversification and economies of scale. Investors buy “units” in the fund that have a proportional exposure to all the assets in the fund, and are bought and sold from the fund manager. The price of units is determined by the value of the assets in the fund and will rise or fall in line with the value of those assets. Like Oeics (but unlike investment trusts) unit trusts and are “open ended” funds, meaning that the size of each fund can vary according to supply and demand of the units form investors. Unit trusts have two prices; the higher “offer” price you pay to invest and the “bid” price, which is the lower price you receive when you sell. The difference between the two prices is commonly known as the bid/offer spread.