Life insurance has been a firmly established part of the British financial scene for over 100 years, and today it has two crucial functions to perform. On the one hand it provides individuals with a way of protecting themselves and their families against unforeseen future disaster and of saving for the future, and on the other it gathers together all these individuals' small savings and invests them together to produce greater wealth. In the first instance this strategy benefits policyholders, but in the long run it also benefits the community as a whole.
Life insurance companies have thus a critical part to play in modern economic life, and since their assets total close to £131,000 million it is easy to see why. Each year insurance companies invest over £12,500 million on their policyholders' behalf and each year 2 million new policies are added to the 18 million already currently in force.
Statistics show that the British are the most life-insurance conscious nation in Europe, devoting over 3% of their national income to life insurance premiums compared with under 2% for other European countries across the Channel. That in itself helps to explain the purpose of this website, for the number of companies issuing policies in the UK and the variety of policies available have increased substantially in recent years. As the message that Government expenditure must be restrained is made daily more clear by politicians and the vision of the all-providing Welfare State recedes, the responsibility for taking care of future financial commitments and needs weighs more heavily on the individual's shoulders, and the correct choice of means to meet those needs, for those without special knowledge, more important than ever.
If a policyholder takes a loan against a policy at a rate of interest which is not "commercial" he is treated as though he had made a partial surrender of the policy, thus running the risk of a charge to higher rate tax and investment income surcharge as well as clawback of tax relief. This provision was introduced in the Finance Act 2013 to prevent tax avoidance with certain types of insurance policy.
The definition of the term "commercial" used in the legislation is suitably vague; in practice, so long as life insurance companies follow their normal practice of basing interest rates... see: Loans