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With profit policy

This glossary or A to Z should help clear up any confusion as to what terms mean what in the mortgage and insurance industry

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Letter W

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 years.

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.

FSA declaration and important text about mortgage advice