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5:00With-Profits & Participating Policies: The Smoothing Machine
Your policy "grew 4% this year" even though the fund fell. With-profits is a machine that deliberately hides the ride, holding back gains in fat years to pay them out in lean ones, until the gap snaps shut.
A with-profits (or participating) policy pools your premiums with thousands of others into a single fund, invests it across equities, bonds, property and cash, and then pays you back through bonuses rather than a daily-priced unit value. The whole point is smoothing: the insurer deliberately holds back some of the return in strong years so it can keep topping up payouts in weak years. You trade away the thrill of the market high for protection from the market low.
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