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Glossary
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Welcome to the Glossary of Terms page. To find the term you are looking for, please select from the A-Z list by clicking on the letter. |
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| With profit policy | | At one time such endowment policies were the most popular method of repaying mortgages, particularly low cost versions.
A conventional With Profit Policy is designed to smooth the returns from different investments. Under such a policy the insurance company will declare annual bonuses usually known as reversionary bonusees. Once declared, these bonuses are guaranteed. At the end of the policy term if the insurance company has managed investments well and market conditions allow, a final or terminal bonus would be paid. Under a unitised With Profit Policy the annual bonuses are declared by a method more akin to interest payments. The units grow at a predetermined rate during the year and if the Actuary is comfortable with the performance of the investments the rate may be increased or maintained. Terminal bonus maybe paid as a lump sum at the end of the policy term or as further increases in the rate of bonus on units after a period of time, e.g. five years.
Actuaries prefer Unitised With Profits to conventional With Profits Plans as the Insurance Company does not have to set aside as much in the way of reserves to cover their liability. | |
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