With
Profit (WP) Bonds ?This type of investment provides the advantages of the strength and stability of a with profits fund. In the long term, the bond should provide a higher return than investing in bank or building society deposit accounts. However, this is not guaranteed and the current level of bonus rates may not be maintained.
The return also depends on the company's policy about distributing profits, in particular where policies are cashed early, in times of adverse market conditions or in other circumstances.
Advantages of With Profit (WP) Bonds
With profits bonds offer a number of advantages to the more cautious investor:
- A relatively stable long term rate of return.
- Regular bonuses.
- Income withdrawal facilities.
Market value reduction factor
Once a bonus has been declared, it cannot be withdrawn. However, the value of your investment can go down as well as up because, in adverse market conditions, the life insurance company reserves the right to apply a 'market value reduction' factor. This means that while the market value reduction factor is applied, there may be a reduction in the value of your investment if you should decide to cash all or part of your bond, or if you wish to switch to another fund.
Early termination
These plans are intended to be a long term investment. If you withdraw from the plan in the early years, your fund could be significantly reduced. Moreover, the impact of charges on the value of the fund could be disproportionately high.
Surrender penalty
These plans are often subject to early surrender penalties which apply on a sliding scale. See the companies illustration for full details.