The with profit policy, as we saw earlier, may have surplus allocated to it in several different ways.
Reversionary bonuses will be added every one, two or three years to the basic sum assured, and the effect of a compound bonus rate is that the rise in the claim value of the policy grows more rapid as time goes on. Fig. 3 shows the effect of this for a younger man taking out a with profit policy.
The surrender value in the early years is low in relation to the total of premiums paid. In the first two years of the policy there is usually no surrender value at all, and not until at least seven years' premiums have been paid will the surrender value equal the gross premiums paid to date (as much as 12 years with some companies).
But by the thirtieth year the surrender value is 50% above the sum assured and by the fortieth year (when the man is aged 70) it is treble the sum assured. However, surrender values are generally not guaranteed, and the actual amount received will depend on the investment conditions prevailing at the time of surrender.
Because of this long-term build-up, the with profit whole-life is most unsuitable as a short-term proposition for the younger man.
Someone taking out such a policy under the age of 35 has got to be prepared to stick with it for at least 20 years to reap the rewards.
The higher the age when taking out the policy, however, the faster the build-up in the surrender value, and so in this case it is not so much of a problem. Nor is this type of policy suitable as a way of buying protection........ see: click here for Ensuring Better Value
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