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With Profits Bonds

With Profits Bonds are single premium Whole of Life policies offered by many insurance companies and usually require lump sum investments. The amount of life cover is normally only minimal, and most With Profits Bonds are taken for investment growth and not life cover alone.

The investment buys units in the insurer's With Profits fund. This fund invests in a wide range of underlying assets such as shares, fixed interest securities and property. Each year bonuses are added to the sum assured either by an increase in the price of units or by allocation of extra units.

Once declared these bonuses cannot be removed and are seen as one of the attractions of With Profits Bonds. This annual declaration of bonuses is known as 'smoothing', and protects the investor from the ups and downs normally associated with investing in stock markets. In years when the performance has been very good the life company will usually retain some of the monies in "reserves" so that in difficult years some level of bonus can be maintained for policyholders.

There is no fixed term to the investment. However, if the bond is encashed in the early years a penalty may be applied. Bonds that are not encashed early will usually attract a terminal bonus on encashment. They may also apply a Market Value adjustment in adverse market conditions to protect the investor staying in the fund.

It is possible to take a regular payments (classed as a withdrawal of capital) either monthly, quarterly or yearly from With Profits Bonds by encashment of units.

If you would like further information on With Profit Bonds or advice on an existing With Profits Bond please contact us.