IPTM1410 - Types of insurance policy used for investment: with-profits and without-profits policies

With-profits

Traditionally, the most common form of investment-type life policy is the with-profits policy commonly used for endowment policies, including mortgage endowments. There is aminimum 바카라 사이트˜sum assured바카라 사이트™ that is augmented through the declaration of바카라 사이트™bonuses바카라 사이트™, reflected in policyholders바카라 사이트™ reasonable expectation to share in profits and the insurers바카라 사이트™ duty of fairness.

바카라 사이트™Sum assured바카라 사이트™ is the cash benefit guaranteed by the insurer. It is different from the 바카라 사이트™surrender value바카라 사이트™. This is the cash value of a whole life or endowment insurance when discontinued, and can be small in the early years of a policy when expenses are high but there has been time for little growth.

바카라 사이트™Reversionary바카라 사이트™ or annual bonuses are generally declared year by year. They are guaranteed additions to the sum assured and payable in the same circumstances. Additionally, a 바카라 사이트™terminal bonus바카라 사이트™ may be declared at maturity or surrender, at the discretion of the insurer. Benefits may therefore comprise sum assured, accrued reversionary bonuses and a terminal bonus. The insurer determines the amount of bonuses following an actuarial assessment of its obligations to policyholders and the value of its with-profits funds.

The popularity of with-profits policies has declined somewhat following, amongst other things, adverse stock market conditions that resulted in some insurers making 바카라 사이트™market value reductions바카라 사이트™ to the value of the reversionary bonuses. These may be applied if the value of the fund assets falls and the viability of the fund is threatened. There has also been criticism of the opacity of the valuation and award process. The advantage lies in the smoothing of returns that protects in some measure against adverse stock market movements.

Unitised with-profits

Some insurers offer 바카라 사이트˜unitised바카라 사이트™ as well as conventional with-profits policies. Here a with-profits fund is notionally split into units. This is purely an internal bookkeeping exercise and the units are not like the units in unit trusts. The바카라 사이트˜units바카라 사이트™ are backed by a pool of assets, or fund, into which the premium is paid. But the bid price, or value of units to the investor, is not directly linked with asset movement, as it would be if the policy were unit-linked. Instead, the insurer controls the price of units, or sometimes the number of them, by allocating bonuses to the tranche of policies to which the units relate. The fund in question is often a specified sub-fund rather than a whole with-profits fund.

Sometimes the term may be applied to with-profits and investment-linked funds comprised in the same policy with the choice of switching between the two.

Without-profits

In this case there is a fixed sum assured. It may refer to a variety of products

  • term insurance - pure protection
  • unit-linked policies, where there is no smoothing, see IPTM1400
  • guaranteed and indexed bonds, see IPTM1420
  • fixed return.

Further reference and feedback, see IPTM1013