A with-profits policy is a type of investment fund. Policies that are with profits give the insured the extra benefit of a bonus that is a share of the profits from the funds that the premiums have been invested in.

How and where the premiums are to be invested is worth establishing if you are going to invest in a with-profits product, such as single premium insurance bonds for example. But as with all long-term investments in the stock market or in interest bearing instruments, it is important to stay with them for the long term. That way they have time to build up and "smooth" the short-term ups and downs in rates of return.

Some policies may also benefit from terminal bonuses if they are held for their full term. When choosing this type of investment it is important to be aware of what charges, fees or commissions may be attached to them and when profits and bonuses are added to the policies. Some, for example, will be heavily weighted with charges at the beginning of their policy life. There is also a risk that the investor may not get back the full amount they have invested.

To safeguard the funds' strength, Market Value Adjusters (MVAs) are imposed on savers who wish to withdraw their money early. MVAs generally take the form of a charge levied on investors who withdraw some, or all, of their money from a with-profits policy before the policy has reached the end of its term. MVAs are applied as a percentage of the amount that the investor withdraws. So, for example, if a firm decides to make a 15% MVA, then when an investor cashes in an investment worth £10,000, the investor will receive £8,500. The percentange depends on when you invested, whether markets had many ‘up’ periods during that time, and whether bonuses were rampant within the fund for any period.

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