Maximum Investment Plan (MIP)
MIPs, also known as qualifying policies or savings endowment plans, are marketed by life assurance companies. A MIP is a unit-linked endowment policy which must be maintained (in the form of regular contributions) for at least a 10-year term. An element of each contribution is set aside to provide life cover with the balance being invested in unit-linked funds or other securities. Providing they remain within the qualifying limits, contributions can be increased or decreased.
The plan holder usually has a range of funds to choose from and will be able to switch between funds, or add funds, subject to a charge. Where annual management charges are levied they are normally in the region of 1% of the value of the MIP: bid/offer spreads are usually around 5%.
Although the funds investments are subject to a maximum of 20% life fund taxation, at the end of the term the plan holder has a cash lump sum available which can be taken free from any higher rate income tax and CGT. It may also be possible to extend the policy beyond ten years and start taking a tax-free income from the MIP while continuing to make contributions to it. MIPs are available to UK residents aged over 18. For life cover to apply the policy holder must be under 80 years of age.