Some of the policies we look after are with-profits policies meaning they share in the profits and losses of the fund they are invested in, in the form of bonuses. The bonuses may be added each year and / or at the end or the policy.
Typically, there are two types of with-profits investment. They can either be unitised or conventional. We call a with-profits policy unitised when your investment buys units in the with-profits fund. We call a with-profits policy conventional when we guarantee to pay out an agreed amount when the policy matures. This could be a lump sum which is called the sum assured or a series of payments called an annuity or pension. We also sometimes call conventional policies, traditional policies.
A with-profits fund is a pooled investment where all policyholders pay money into the fund through their premiums. Each policyholder gets a share in the profits through a bonus being added to their policy value. The policyholders also share the costs of running the fund.
A with-profits fund holds a wide range of higher and lower risk investments to spread the investment risk so that it offers a balanced investment opportunity. The profits from the fund are smoothed over time so that it offers a stable return from year to year. This means some of the profits are held back in good years to support bonus rates in the years when the profits are lower. This gives some protection from market volatility when the stock market’s overall value swings up and down, but it does not stop the value of your policy reducing if investment returns are low.
If you have a with-profits policy with us you can find out more about how it works through the customer centre. Click on With-profits. You’ll be asked to select the name of your former policy provider. On the with-profits page for your fund you’ll find your policy type listed. You’ll find your policy name on your annual statement.