The definition of Unit Linked is the savings product based on life insurance that covers death, retirement or disability, and where the contributions made are invested in a basket of fondos de inversión or portfolio of securities, which is selected according to the risk profile of the policyholder, who in this case also plays the role of saver.
On the one hand it can be defined as life insurance, but on the other it also acquires the category of investment and savings mechanism.
What is unit linked insurance?
A unit linked insurance is a life insurance where the funds in which the technical provisions materialize are invested in the name and on behalf of the insurers in financial assets selected by the policyholder, who will have to assume the investment risk.
With this, the policyholder invests in life insurance while establishing the assets in which he wishes to make his investments, while the insurer assumes ownership of these assets and links them to the policy.
It is worth highlighting the taxation of unit linked, which enjoys the same tax regime as life insurance contracts in the IRPF. Therefore, the returns obtained by the insured will be considered as returns on movable capital, accrued at the moment the insurer pays the economic rights from the policy.
Advantages and disadvantages of unit linked
To better understand the concept of unit linked, we are going to show the advantages and disadvantages:
Beneficios the unit linked
Among the pros of this product we find:
- It is a financial product that combines the tax advantages of life insurance with the profitability provided by investment funds.
- They are more versatile than other savings products, since they make it easier for the saver to change from one basket to another depending on the market situation.
- When the unit linked redemption is done as a life annuity, it will have tax credits.
- It allows frequent contributions to a basket.
- They ensure additional coverage in the event of death.
- Possibility of choosing the savings term, the covers, value of premium and investment.
Disadvantages of unit linked
Despite the benefits, we must be aware of the risks:
- Profitability is not guaranteed, as it will depend on the evolution of the products that make up the basket.
- The risk is for the participant, since the capital is not insured.
- A part of the contributions that are made will pay the insurance premium and as the years go by the percentage of the capital directed to insurance will be higher and lower for the investment.