There are two main types of with profits policies – Unitised and Conventional.

Unitised With Profits:

• the premiums buy units in the unitised with-profit fund
• The unit price is guaranteed not to fall

2 basic types of unitised with-profit:

• Fixed price – The unit price never varies. When a regular bonus is added extra units with the same price are allocated to the policy, these extra units cannot be taken away. Number of units is increased daily throughout the year by a percentage of the annual bonus rate.
• Variable – The unit price is increased through the addition of regular bonuses and is guaranteed not to fall. The most common method of allocating the bonus is by daily increases in the unit price throughout the year.

Advantages of unitised policies

• The bonus rate is declared annually in advance (but investors should be aware that this could be amended later on in the same year);
• It is easier to understand the current value of the investment;
• Switches can be made to and from other unit-linked funds, although an MVR may apply to switches out;
• Unitised with-profit policies involve the insurance company in less initial commitment of reserves than traditional with-profit policies;
• A final bonus may also be paid on death or maturity in addition to the value of the units.

Conventional With Profits

A conventional with-profit policy has an initial sum assured that is increased by the addition of bonuses. Annual bonuses and final bonuses are declared as a percentage of the sum assured, or the sum assured plus attaching bonuses.

The characteristics of conventional with-profit policies are that:

• Bonuses are declared annually in arrears;
• The investor can see the build-up of the policy in terms of the eventual proceeds, which are secured each year by the bonus declaration;
• Investors cannot easily calculate the current value of their policies.

Unitised with-profits policies have now almost entirely taken over from their conventional counterparts. However, it is important to understand the characteristics of both types of policies.