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With Profit Funds
The return of a with profits fund depends upon the profits made by the life office and its policy as to their distribution. The underlying investments comprise a broad spread of stocks and shares, gilts and commercial property. Of the actual returns achieved by a with profit fund, some are distributed immediately to policyholders whilst others are accumulated for distribution in future years when returns might not be so good.
A with profit fund increases in value via the addition of bonuses. Bonus rates are not fixed and may fall or rise in the future dependent on the returns achieved. Once a bonus has been added however, it cannot be taken away if premiums are paid in full for the complete term. Should investment conditions be likely to prompt a large number of policyholders to switch or encash their with profit policies, companies do reserve the right to apply a Market Value Adjustment (MVA) factor where necessary to protect policyholders remaining invested. MVA’s are not applied to claims on death however.
Where unitised with profit contracts are concerned, bonuses will either be added by increasing the unit price (which on unitised with profit funds is guaranteed never to fall) or via the addition of bonus units, where the price stays the same and more units are added to the policy.
