Life Insurance Guide | Insurance Help Product Information | Unitised With Profit

Many offices have introduced unitised with-profits funds. These are with-profits investments expressed as a unit-linked policy. The main difference from the other unit-linked funds is that the unit price is guaranteed not to fall. An advantage is that clients find the bonus and pricing system easier to understand, because bonuses are related to the accumulated fund rather than the sum assured. From the life company’s viewpoint, unitised with-profits policies are less capital hungry than their counterparts, which adds to their appeal.

An element of the annual bonus may be guaranteed and there may also be a terminal bonus on a claim by maturity or death. There is a wide variety between the unitised with-profits funds of the different life offices, but the aim is to express the traditional with-profits investment as a unit-linked policy, and most companies give the policyholder the chance to switch between with-profits and true unit-linked funds.

However, most life offices reserve the right to apply a market value adjustment factor (MVAF) to surrenders and switches out of the with-profits fund. MVAF enables the life office to reduce the surrender or switch value if it would otherwise be in excess of the value of the underlying assets. The object is to protect the interests of those staying in the funds and maintain fairness between those who cash in early and those who stay the full term. For this reason, MVAFs are not applied to claims on death or maturity.

As unitised with-profits is a relatively new innovation, past performance figures are still sometimes quoted for traditional contracts, a point which investors and advisers should bear in mind.

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