With profits

With profits is usually a term used to describe an insurance policy which includes the right to receive a share of the extra profits made by the company, over and above the basic sum assured.

The premiums for such policies secure a "basic sum assured" and the policy-holder participates in the profits of the insurance company by having bonuses added to the basic sum assured. Bonuses are added each year, these are called reversionary bonuses.

Once added such bonuses cannot be taken away. At maturity the policy pays out the basic sum assured plus accumulated bonuses.

Normally, at maturity the policy will also pay out a "Terminal" or "Capital" bonus which may be worth between a quarter and a half of the final amount paid out (which means it may be worth waiting for).

See Also: Pensions & Retirement Centre Pensions Glossary

Last Updated: June 2006 © Moneyextra.com

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