Unit-Linked: What they are, how they work, and how to invest in them in Portugal
At a glance:
• Unit-linked policies are a type of variable capital life insurance linked to investment funds. They are classified as Structured Savings Instruments (ICAE, in Portuguese) and are regulated by the ASF (Insurance and Pension Funds Supervisory Authority).
• The value of the policy depends, either in full or in part, on the performance of the underlying independent funds and you may lose some or all of your capital.
• The level of taxation varies according to the term of the product:
• For individual clients - the effective personal income tax rate may fall from the standard 28% to 22.4% (5 to 8 years) or 11,2% (more than 8 years) provided the 35% rule is met.
• For corporate clients – the effective corporation tax rate may fall from the standard 25% to 20% (5 to 8 years) or 10% (more than 8 years) provided the 35% rule is met.
• They offer management flexibility, allowing funds to be allocated between autonomous funds without triggering a tax event during the term of the contract, as well as providing effective succession planning tools.
• Banco Carregosa offers six unit-linked solutions organised by asset class and investment profile.
Unit-Linked products are attracting investor Interest in Portugal, and for good reason. In this article, we aim to provide a clear and systematic explanation of what unit-linked products are, how they work and what to look out for when subscribing to this product.
This approach is based on the principles of analysis and prudence followed by Banco Carregosa. It focuses on making informed investments that align with the investor’s risk profile and integrates solutions within the overall context of their assets. To ensure technical rigour, consistency and adherence to the best practices of financial communication, the content was prepared in collaboration with Filipe Silva, Head of Investments at Bano Carregosa.
What are Unit-Linked products?
A Unit-Linked product is a type of variable capital life insurance policy regulated by the Insurance and Pension Funds Supervisory Authority (ASF). The amount payable to the policyholder depends, in full or in part, on the performance of separate investment funds. It combines a life insurance component with an investment component in unit-linked funds within the same policy.
These products are classified as both Structured Savings Instruments (ICAE) and complex financial products (PRIIP), which implies the following:
• There is an obligation to provide a Key Information Document (KID) before subscription.
• As a general rule, there is no capital guarantee or minimum return unless this has been specified in the contract.
• The requirement to assess suitability for the investor’s profile.
Banco Carregosa’s approach to Unit-Linked products is based on the principles of informed investment and alignment with the investor’s risk profile. It also involves integrating solutions within the investor’s overall wealth context. As a Private Bank with a history spanning over 190 years, recognised for the second consecutive year as the Best Pure-Play/Boutique Private Bank Portugal at the Euromoney Private Banking Awards 2026, we incorporate Unit-Linked products into our comprehensive wealth management strategy.
An essential glossary
Before we go any further, it is useful to define the technical terms used in this guide.
| Term | Meaning |
|---|---|
| Policyholder | A natural or legal person who enters into a contract with an insurer and pays the premiums. |
| Insured | The person on whose life the contract is based. This person may or may not be the same as the policyholder. |
| Beneficiary | The person(s) who will receive the sum assured in the event of a claim or at maturity. This person may be changed by the policyholder. |
| Premium | The amount paid to the insurer for investment purposes, which may be a one-off payment, periodic instalments or a top-up. |
| Policy | A contract entered into between the policyholder and the insurer. |
| Separate fund | A portfolio of assets into which the premium is invested. One or more separate funds may be linked to a policy. |
| Units | Units of the separate fund. The value of the policy is equal to the number of units multiplied by their current value. |
| KID | Key Information Document, mandatory for PRIIP products. It summarises the risks, costs and potential outcomes. |
Banco Carregosa Unit-Linked Insurance
Invest with Banco Carregosa through Unit-Linked products and enjoy all the benefits alongside the expertise of Banco Carregosa. Find out more here.
How do Unit-Linked policies work?
When you take out one of these policies, your capital is converted into units. These units reflect the performance of the underlying assets, so the value of your policy will vary over time.
The processes involved in a unit-linked policy can be summarised in five steps:
1. Subscription: the policyholder enters into a contract with the insurer, names the beneficiary or beneficiaries, and pays the premium.
2. Conversion into units: the net capital is converted into units of the chosen autonomous fund(s).
3. Appreciation or depreciation: whether a unit appreciates of depreciates depends on the performance of the underlying assets (such as shares, bonds, ETFs, investment funds, alternative assets, among others).
4. Active policy management: throughout the policy term, depending on the contract, the investor may top up premiums, reallocate capital between separate funds, or change the named beneficiaries.
5. Redemption: this may be partial or total when requested. In the event of redemption or a claim, the payout will be made to the named beneficiaries.
Separate Funds as Investment Portfolios
The investment flexibility that characterises unit-linked policies is what sets them apart. This flexibility allows a single policy to include one or more separate funds, which can be likened to different investment ‘portfolios’. Each of these portfolios has distinct strategies, risk profiles and objectives. The investor can access more conservative, balanced or dynamic solutions within the same policy, adjusting the capital allocation in line with market conditions or the growth of their assets.
In practice, this structure enables you to:
• Diversify within the same contract, eliminating the need for multiple policies.
• Adjust the allocation over time as the investment horizon approaches or as market conditions change.
• Combine different profiles to create an integrated wealth strategy that includes both preservation and growth.
Switching between separate funds: a little-known tax advantage
One of the most significant features of unit-linked products, and one that is often overlooked, is that redistributing capital between separate funds within the same policy does not usually constitute a taxable event. Taxation only occurs at the time of redemption or maturity.
In practice, this means that, over many years, an investor can:
• Adjust the allocation between shares, bonds, and other asset classes.
• "Freeze” the gains from one separate fund and transfer them to another.
• Adjust the level of risk gradually as the financial goal approaches.
This is all possible without paying tax on every transaction, which allows the capital to continue benefiting from the gross compounding effect. If you hold a portfolio of investment funds or ETFs directly, every sale resulting in a capital gain will be subject to immediate taxation. This reduces the amount of capital available for reinvestment.
What are the advantages of Unit-Linked products?
Tax efficiency based on the holding period
In accordance with Article 5 of the Personal Income Tax Code, the taxation of unit-linked products benefits from partial income exclusions as the holding period increases. The effective rate is calculated based on the positive difference between the redemption value and the total premiums paid. These rates are indicative only and are subject to compliance with legal requirements, particularly the 35% rule (see the ‘Taxation’ section).
Flexibility through Separate Funds
As outlined in the previous section, the capacity to combine and adapt autonomous funds within a single policy provides a level of flexibility that is seldom found in other long-term instruments. Investors can adapt their strategy to their life stage without splitting their assets across multiple contracts.
Switching without ‘freezing’ capital gains
As a rule, the internal redistribution of capital between separate funds within the same policy does not constitute a taxable event. This feature enables active management of the allocation over time, enabling the capital to appreciate on a gross basis until redemption.
An effective succession planning tool
This is arguably one of the most underrated advantages of unit-linked policies, and a key reason why they have become a central instrument in European wealth management. The legal framework for life insurance provides unit-linked policies with significant advantages for succession planning purposes:
• Free choice of beneficiaries: the policyholder may name any person (including those outside the circle of legitimate heirs), provided that legal limits are not exceeded.
• Direct payment to the beneficiary: the insurer pays the capital directly to the beneficiary, bypassing the process of appointing heirs.
• The capital is not included in the estate: as a rule, sums paid to the beneficiary under the insurance contract are not included in the estate for the purposes of the inventory. This does not affect the rules on the reserved share and collation.
• Stamp Duty on inheritance: there is no consensus on how the applicable legislation should be interpreted with regard to the liability of life insurance and unit-linked policy proceeds for stamp duty in the event of death. As a general rule, the capital is paid directly to the beneficiaries named in the policy. Many insurers take the view that no stamp duty is payable, as the capital does not form part of the deceased’s estate. However, given the different legal and tax interpretations that exist, it is recommended that the applicable framework is confirmed with both the insurer and the Tax and Customs Authority.
• Privacy and fast processing: payments to the beneficiary are usually faster than through a conventional probate process.
Diversification and professional management
Investors can access professionally managed, diversified portfolios through separate funds, with exposure to shares, bonds, commodities and alternative strategies. This management service is especially useful for investors who lack the time, knowledge or organisational skills to manage a diversified portfolio themselves.
Possibility of early redemption
Unit-linked products generally allow for early redemption, either in full or in part. However, this is subject to contractual conditions and any associated fees and tax implications. Although early redemption may cancel out the tax advantages associated with the holding period, this feature offers greater liquidity than other long-term instruments.
What are the risks of Unit-Linked products?
Unit-linked products are complex financial instruments. You should carefully read the pre-contractual documentation and the Key Information Document (KID) before subscribing.
| Risk | Description | How to mitigate risks |
|---|---|---|
| Market risk | The value of the policy fluctuates according to the performance of the underlying assets. A loss of capital may occur. | Set a consistent time horizon, diversify across separate funds and make adjustments as the target date approaches. |
| Liquidity risk | Early redemption may incur costs or be subject to a waiting period. | Check the redemption policies in the contract and the Key Information Document (KID) and make sure you have additional liquidity outside the policy. |
| Complexity risk | The structure, tax treatment and contracts may be difficult to understand. | Seek professional advice, review the KID and clarify any queries before subscribing. |
| Risk of legislative changes | Legislation may affect taxation. | Keep up to date with regulatory developments and review your asset management strategy periodically. |
| Currency risk | This is relevant for funds that hold assets in foreign currencies. | Assess currency exposure in the KID and consider whether to hedge. |
Do unit-linked products have guaranteed capital?
Generally speaking, no. Unit-linked products are a type of variable capital product, where the policyholder bears the investment risk. The amount received depends on the performance of the underlying assets, and a total or partial loss of capital may occur.
While there may be solutions involving protection mechanisms depending on the product's specific characteristics, the standard arrangement is for the policyholder to bear the risk. For this reason, the following should be carefully analysed before taking out a policy:
• The investment policy of each separate fund.
• The risk profile and synthetic risk indicator included in the KID.
• The presence or absence of protection mechanisms.
• Conditions for redemption and applicable charges.
When conducting a suitability assessment, it is important to consider the risk profile, time horizon and financial objectives of each investor.
Taxation of Unit-Linked products in Portugal
Although taxation is often cited as one of the main advantages of unit-linked products, the specific tax treatment depends on various factors. This section summarises the key points.
Legal notice: The content of this section is for information purposes only and is based on legislation in force at the time of the last update. A tax analysis of each specific situation should be carried out with the support of a specialist. Please note that tax legislation is subject to change.
How taxation works
In accordance with Article 5 of the IRS Code, income from unit-linked products is classified as capital income (IRS category E). Taxation only occurs at the time of redemption or maturity, and is levied on the positive difference between:
• The amount received (whether from redemption, advance or maturity); and
• The sum of the premiums paid.
The standard rate is 28%, which is either a withholding tax or a separate tax, depending on the circumstances.
Effective rates by holding period
| Contract holding period | Exclusion | Income Tax Rate | CIT rate |
|---|---|---|---|
| Less than 5 years | 0% | 28.0% | 25% |
| Between 5 and 8 years | 1/5 (20%) | 22.4% | 20% |
| More than 8 years | 3/5 (60%) | 11.2% | 10% |
The 35% rule: a key condition for benefiting from reduced rates
The reduced rates of 22.4% and 11.2%, or 20% and 10%, apply if the following legal condition is met:
• At least 35% of the total premiums must have been paid in the first half of the contract term.
The purpose of this rule is to prevent late top-ups from undermining savings nature of the product. Compliance must be planned from the outset of the contract and verified prior to each substantial top-up.
Inheritance tax: Stamp Duty
In the event of the policyholder's death, the sum assured under a life insurance policy or a unit-linked contract with a designated beneficiary is usually paid directly to the named beneficiary. There is no consensus on how the applicable legislation should be interpreted with regard to the liability of life insurance and unit-linked policy proceeds for stamp duty in the event of death. It is often understood that no taxation is due as the payment results from an independent contractual right rather than a transfer of inheritance. According to this understanding, beneficiaries who would usually be subject to stamp duty in other gratuitous transfers (such as siblings, nephews or third parties) are not subject to such taxation in this context.
In contrast, financial assets held directly, such as bank deposits or securities, usually form part of the estate. They are subject to the general stamp duty regime, which may involve different taxation and a more formalised succession process.
As there is no single, uniform interpretation of this matter, it is recommended that you confirm the applicable framework with a tax specialist, your insurer, or the Tax and Customs Authority.
Other tax factors
• Taxation may be amended by the state budget.
• The applicable treatment depends on the investor’s personal tax situation.
• Specific implications may arise from partial redemptions, asset transfers and contracts involving foreign premiums.
• Specific rules apply to non-residents in Portugal, depending on their tax residence and the insurance provider.
A tax analysis should always be carried out on a case-by-case basis and, ideally, with the support of a specialist.
For whom does a unit-linked policy make sense, and for whom does it not?
A unit-linked policy could be a good fit for...
• Investors with a medium- to long-term outlook (ideally over 5 years and preferably more than 8).
• Those seeking tax efficiency on significant accumulated capital.
• Investors with succession planning concerns who wish to organise the transfer of their assets in a predictable and efficient manner.
• Investors who value professional management and diversification, but do not have the time or desire to manage a direct portfolio.
• Investors seeking flexibility across asset classes, but without having to fragment their assets across multiple contracts.
A unit-linked policy might not be a good fit for...
• Those who need short-term liquidity as this type of product is typically geared towards medium and long-term investment, so it may not be suitable for those who need short-term liquidity. Furthermore, making an early withdrawal will prevent the full optimisation of the applicable tax regime, namely the reduction in the tax rate from the 5th year and 1 day (22.4%), and again from the 8th year and 1 day (11.2%).
• Those who prefer to retain full active control over every investment decision rather than delegating to professional management.
• Those who subscribe without having an investor profile compatible with complex financial products.
• Those seeking fully guaranteed capital, for which there are more suitable alternatives.
Unit-Linked costs: what to consider
Costs can have a significant impact on net returns and must therefore be carefully analysed in the KID. The main cost categories are:
| Cost category | What it is | What to look for |
|---|---|---|
| Entry costs/Subscription fee | Fee charged on entry/subscription or top-ups (% of the premium). | It is generally not applicable, but it is advisable to check. If it is applicable, at what levels? Can it be negotiated? Always check with the KID. |
| Exit costs / Redemption fee | Charges on redemption (total or partial). | These are usually not charged, especially if they are held for the recommended period. However, if applicable, check whether there are any time limits or schedules. Always check with the KID. |
| Management fees and other recurring charges (i.e. administrative or operational costs) | Annual charge on the invested amount. | The main cost of the product. This is usually charged monthly and typically includes policy management, administrative costs, and the costs of the underlying funds. Some separate funds may include performance fees. |
| Transaction costs | Costs associated with the purchase or sale of individual assets within the funds. | Usually not visible as a direct fee but are estimated in the KID. The amounts vary depending on how frequently transactions are carried out within the funds. |
| Switching costs (transfer between funds) | Switching between separate funds may incur a cost in some products. | Check the free transaction limit and the cost of any additional transactions. |
The KID provides standardised cost indicators that allow you to compare products. Over the long term, seemingly small cost differences can result in significant variations in accumulated capital.
How to choose a Unit-Linked product: 7-point checklist
1. Define your risk profile
Assess your risk tolerance. Unit-linked products range from conservative to aggressive. You can begin by taking the investor profile questionnaire or reading the article on "Investor Profiles".
2. Define your time horizon
As tax efficiency increases significantly after 5 and 8 years, your time horizon will directly influence which product is most appropriate for you. The longer the time horizon, the greater the potential tax benefits.
3. Assess the investment policy of the separate funds
Review the Key Information Document (KID) and the investment policy. Which asset classes are there? What strategies are used? Which markets? What is the synthetic risk indicator?
4. Check the performance history
Past performance is no guarantee of future results, but it can give you an indication of the consistency of the management. See how the fund has performed in different market conditions, such as rising, falling and stable markets, and particularly during adverse periods.
5. Check the costs and fee structure
Compare the subscription, management and redemption fees, as well as the costs of the underlying funds and the contract charge. Over the long term, these costs can significantly impact returns.
6. Check the redemption flexibility
Examine the conditions for early redemption. Are there any waiting periods? Penalties? Are there any limits?
7. Seek specialist advice
Investors with significant assets or complex wealth objectives (including intergenerational transfers) often find that the support of a specialist wealth manager is crucial when it comes to building a suitable solution.
Discover your investor profile
Read the article "Investor Profile" to find out whether you’re a conservative, moderate, or dynamic investor.
Banco Carregosa Unit-Linked products: 6 investment solutions
Banco Carregosa offers Unit-Linked products through tax-efficient investment solutions structured as insurance contracts linked to investment funds. These solutions are designed for investors with a medium- to long-term outlook who prioritise diversification, specialised monitoring and the flexibility to adapt their strategy over time.
The solutions are organised into two main categories: asset class and investment profile.
By asset class
| Solution | Main focus | Investor profile | Minimum investment |
|---|---|---|---|
| Global Bonds | A direct investment portfolio in bonds, aiming to generate positive returns in the medium to long term while minimising risk exposure | Investors with a moderate profile and some risk tolerance | 10,000€ |
| Alpha Value | A combination of investments in bonds (the core), equities and various alternative strategies, seeking to mitigate risk through significant diversification | Investors seeking to diversify beyond traditional asset classes | 10,000€ |
| Global Equities | Exposure to the global equity market, including company selection and ongoing risk management | Investors with an aggressive profile and a high-risk tolerance | 10,000€ |
By investment profile
| Solution | Main focus | Investor profile | Minimum investment |
|---|---|---|---|
| Adagio Preservation | Portfolio consisting mainly of bond funds and ETFs | Inflation-adjusted capital preservation | 10,000€ |
| Andante Capitalisation | Portfolio consisting mainly of ETF bonds, equity and alternative funds | The primary objective is capital preservation, and the secondary objective is capital appreciation | 10,000€ |
| Allegro Appreciation | Portfolio consisting mainly of ETF bonds, equity, and alternative funds | The primary objective is capital appreciation, and the secondary objective is capital preservation | 10,000€ |
Quick decision table
| If the investor is looking for... | You can consider... | Disclaimer |
|---|---|---|
| Greater focus on bonds | Global Bonds or Adagio Preservation | Investing in bonds does not eliminate market, interest rate or credit risk |
| A balanced profile | Alpha Value or Andante Capitalisation | Suitability depends on the investor's profile, time horizon, and financial objectives |
| Exposure to global equities combined with exposure to bonds | Global Equities or Allegro Appreciation | May involve greater volatility and the possibility of capital loss |
| Exposure to global equities | Global equities | May involve greater volatility and the possibility of capital loss |
Specialist advice from Banco Carregosa on choosing Unit-Linked products
Founded in Porto in 1833, Banco Carregosa, registered with Banco de Portugal (BdP) under no. 0235, and with the Portuguese Securities Market Commission (CMVM) under no. 0169, is a financial institution with a history spanning over 190 years, specialising in Private Banking and Wealth Management. We take an independent approach, building close relationships with our clients to establish long-term partnerships. Our focus is on preserving, growing and transferring wealth across generations.
For the second consecutive year, Banco Carregosa was named Best Pure-Play/Boutique Private Bank Portugal at the Euromoney Private Banking Awards 2026. This recognition is awarded in appreciation of the Bank’s specialised positioning in private banking and wealth management.
At Banco Carregosa, we offer a range of Unit-Linked solutions designed to suit different investor profiles. These solutions cover everything from more conservative approaches to global growth strategies.
Contact your account manager
To find out how to incorporate this tax and inheritance planning solution into your wealth management strategy, contact your account manager.
Unit-Linked: FAQs
What is the difference between a Unit-Linked insurance policy and a capitalisation insurance policy?
Both fall under the life insurance category and are financial products. Capitalisation insurance typically offers guaranteed capital and a pre-defined or index-linked return, making it a more conservative option. Unit-linked products have variable capital, with the value depending on the performance of the underlying independent funds. While this offers greater potential for appreciation, it also carries a higher level of risk. The most suitable option depends on the investor’s profile and objectives.
What are the income tax (IRS) and corporate tax (IRC) rates on a unit-linked policy after 8 years?
After 8 years, the effective personal income tax rate is 11.2%, while the corporate tax rate is 10%. This rate only applies if the 35% rule is met, i.e. if at least 35% of the total premiums have been paid by the end of the first half of the contract term.
Can I switch funds within a unit-linked policy without incurring a tax liability?
Yes, the reallocation of capital between separate funds within the same policy is not usually a taxable event. Tax is only payable when the insurance policy is redeemed or reaches maturity. The specific conditions for transfers, including any free limits and administrative costs, should be checked in the contract.
Are unit-linked policies included in the estate?
In general, the capital paid to the beneficiary under the insurance contract is not included in the estate for inventory purposes, provided that the rules on the reserved share are complied with. Payment is made directly by the insurer to the designated beneficiary. However, different interpretations may apply, so it is always advisable to confirm the situation with either the insurer or the Tax and Customs Authority.
What happens to a unit-linked policy if the insured person dies?
The insurer pays the capital (equal to the policy's value at the time of the claim) to the designated beneficiary or beneficiaries without the need to establish who the heirs are.
What are the main risks of unit-linked policies?
The main risks are market risk (with the possibility of capital loss), liquidity risk, insurer credit risk, product complexity risk and risk of legislative changes. In some cases, there is also a currency risk. These risks are described in the Key Information Document (KID) for each product.
Which type of investor are unit-linked products suitable for?
These products may be suitable for investors with a medium- to long-term investment horizon (ideally over 5 years), who have a risk tolerance that is compatible with the product and who are interested in diversified, tax-efficient solutions and/or succession planning. Whether or not a product is suitable should be assessed on a case-by-case basis, depending on the investor’s profile, objectives, financial situation, and knowledge of complex financial products.
Can I redeem a unit-linked policy before maturity?
Yes, early redemption is generally possible. However, redemption before the end of the holding period (5 or 8 years) may invalidate the associated tax advantages. Please refer to the contractual documentation for the specific conditions.
What is the minimum amount that can be invested in a Banco Carregosa unit-linked policy?
As a rule, the minimum investment in Banco Carregosa’s unit-linked solutions is €10,000, applicable to both asset-class and investment-profile based solutions.
Are there any guarantees on the capital of Banco Carregosa’s Unit-Linked products?
No, Banco Carregosa’s unit-linked solutions are variable capital products, for which the policyholder bears the investment risk. While some solutions, such as Adagio Preservation, prioritise capital preservation, this does not constitute a formal capital guarantee.
How does a unit-linked product compare with a Pension Savings Plan (PPR)?
Although both are long-term savings and investment products offering tax advantages over time, there are significant differences. The PPR is governed by both Article 21 of the Tax Benefits Statute (EBF) and the Personal Income Tax Code (CIRS). Depending on the subscriber's age and certain other conditions, an income tax deduction of up to 20% of the amount invested at the time of subscription is allowed, up to a maximum annual benefit of €400. Upon redemption, you can benefit from reduced taxation, which can be as low as 8% after eight years, provided the legal conditions are met. However, there are more restrictive withdrawal rules, with free redemptions only permitted in situations provided for by law.
Unit-Linked products do not offer income tax relief on contributions. Taxation only occurs at the time of redemption, and there is the potential to benefit from a reduced rate of 11.2% after eight years. It is more flexible, offering greater freedom of redemption and control over the investment. It is also a frequently used tool in succession planning.
In short, the PPR focuses on tax incentives and long-term discipline, while the Unit-Linked product prioritises flexibility and freedom when managing investments.
What is the KID and why is it important?
The Key Information Document (KID) is a standardised document required for complex financial products (PRIIPs). It presents a synthetic risk indicator, performance scenarios, total costs (including their impact on returns) and key features in a standardised format. It is important to read it carefully before subscribing.
Disclaimer: This article has been prepared by Banco Carregosa for informational and educational purposes only. It does not constitute an investment proposal or recommendation to buy, nor does it constitute personalised financial advice. Unit-linked products are complex financial instruments that take the form of an insurance contract linked to investment funds. They carry various risks, including market risk, capital loss risk and liquidity risk. We recommend that you consult an account manager or financial adviser before making any investment decisions to ensure that the products are suitable for your risk profile and financial objectives. Before subscribing, you should consult the pre-contractual and contractual documentation required by law. You should also assess whether the solution is suitable for your investor profile, objectives, time horizon and financial situation.