With profit policy
Simply put this is were the premiums of the plan entitle the plan holder to
share in the declared profits of the life assurance or pension fund involved.
You will also hear term Conventional with profits. Conventional with profits
policies are made up of 3 elements
Guaranteed benefit (also known as sum insured): This is the amount payable at
the date of the claim (eg. maturity or earlier death). Bonuses are added to this
amount over the term of the policy to make up the final payout.
Regular Bonus (also known as annual or reversionary bonus): This is the amount
added to a with-profits policy each year. It is a payment on account towards the
full share of policy earnings which will be payable at the date of claim. For
most policies it is expressed as one percentage applying to the guaranteed
benefit and a further percentage applying to the bonus already added in previous
Final bonus (also known as terminal or additional bonus): At the date of claim
the total of the guaranteed benefit and regular bonuses to date is compared with
the total earnings of the policy. Any balance is made up through the declaration
of a final bonus. Final bonus rates are expressed as a percentage of the
guaranteed benefit and will form a scale of rates that will vary according to
the year the policy was taken out.