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Types of insurance company




Profits

Personal pensions

In 1988 great changes took place in their legal basis. Those pension con­tracts taken out before July of that year are termed 'retirement annuities' and many of these will continue until their owners purchase special kinds of annuities from which they will draw their pensions. This could continue until 2030 or later.

Personal pensions replaced the older products and began to be sold in 198S. They are particularly suitable for self-employed people and those workers with no occupational pensions. Most providers of personal pensions are life assur­ance companies rather than pension funds.

 

Additional voluntary contributions (AVCs)

These, before 1988, could be provided by pension funds for their members to 'top up' their pensions to the maximum possible level. Since 1988, new AVCs must be 'money purchase' schemes, usually provided by life assurance com­panies, rather than allowing members to buy extra years of service for their pension schemes provided by their employers.

Apart from term life assurance, holders of whole life, endowment policies and annuities can share in the profits of the company or organisation providing the cover. Traditionally, profits have been declared annually or every three or five years, and added to the sum assured in what are known as reversionary bonuses. These cannot be taken away, so that assurers adopt a very conserva­tive attitude when 'declaring' (announcing) them. A second type of bonus is paid on maturity - the terminal bonus - and this fluctuates in line with conditions in the stock and property markets. In the 1990s, many companies have been reducing their terminal bonuses, while others have even been un­able to declare reversionary bonuses at the level of previous years.

These uncertainties of the trend of profits have caused some companies to cease to sell 'with profits' endowment policies. Instead, they have begun to sell 'unit-linked' endowment policies, which are divided into units whose value fluctuates in line with market trends. In other words, their value can fall, unlike the traditional 'with profits' endowment or whole life policy.

Some companies specialise in life assurance, e.g. Scottish Widows. Others concentrate on general insurance, e.g. Norwich Union (which has a separate life assurance company). Yet other are composite insurers, providing both life and general cover from the same business.

There is also a very strong 'mutual' element in the industry, with the Firms being owned by their policy holders and not their shareholders. Scottish Wid­ows is one of these, as is Standard Life, the largest of the mutuals. Norwich Union is, at present, a mutual but plans to become a pie in 1997 or 1998. Another mutual - Clerical. Medical and General - has been bought by the Halifax Building Society.

 




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