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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.
