The announcement by Standard Life of exit penalties and bonus cuts for with-profit customers left many policy holders dazed.

BBC News Online helped by a financial adviser, answers some common policy holders' questions.

Why is Standard Life allowed to cut final bonuses and impose an exit penalty once the policy has been taken out?

Put simply, because the terms of the policy allow Standard Life to do so.

Standard Life, though, is hardly alone in its actions.

Most assurers facing falling stock markets, including Standard Life, Norwich Union, Prudential and Scottish Widows, have cut the bonuses on with-profits funds.

Two weeks ago Standard Life almost doubled the exit penalties for customers who leaving its life and pension products early.

Insurers impose exit penalties to protect the integrity of the fund.

A mass exodus of policy holders can force the assurer to sell shares at a time when market conditions are poor.

The stock market's spiral downwards - and the worst bear market for 30 years - has forced many insurers to cut bonus rates.

Standard Life has now said it would reduce extra payments to almost 2.5 million customers this year on its "with profits" products.

What do the cuts mean?

Today's announcement combined with the cuts on policies announced last autumn, will have a substantial impact on the maturity value of policies.

Someone with a 25 year endowment policyholder, on investments of �50 a month would have received a final fund value of �99,747 on 1 February 2002.

A year on, and after two subsequent cuts to the policy, it would have been reduced to �75,984.

A 25 year pension policy built up with contributions of �200 a month would have received �656,625 on 1 February 2001.

But following the two cuts, the person's policy value would have declined by 24% to �500,414.

I have three individual savings accounts (Isas) and a pension with Standard Life.

How am I affected by the company's move?

The good news is that Isas and deposit accounts held with Standard Life are not affected by the move to cut bonuses or impose exit penalties.

Worried about an endowment shortfall?

Click here for more on how it affects you

However, pension funds or any other investment such as a with-profit bonds, endowment or life policies - which have built into them the chance of a terminal bonus - will see the maturity value cut by on average 15%.

Is Standard Life going the way of Equitable Life?

The differences between the two at this time seems quite stark.

According to Colin Jackson, an independent financial adviser, Equitable Life was in a far weaker position when problems first came to light in the late 1990s.

But last week Standard Life was downgraded by Standard & Poor, a credit rating agency.

As well as boosting exit penalties, Standard Life, once reputed to have by far the strongest finances of any life insurer in the UK, has borrowed �1 billion on the bond market to shore up its finances.

S&P's analyst Manish Bakhda said it had taken account of these steps designed to improve Standard Life's financial strength.

He said: "Although alternative capital-raising methods are possible, they are also considerably more difficult in the current climate."

Standard Life said on Monday that "investment conditions remain extremely challenging."

Over the long term as stock market performance improves, bonuses on with-profits should increase.

The mass exodus from equities by insurers over the last two years is likely to starve some growth once the market picks up.

Insurers have warned that investment returns may not be so big as in previous years, because of this reduction.

Any opinions expressed by Colin Jackson are the financial adviser's, not the BBC's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.