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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products

In a traditional participating endowment policy issued by an Indian life insurer, what is the 'terminal bonus' (also called final additional bonus)?

Terminal bonus is a non-guaranteed, discretionary bonus paid at maturity, death or sometimes surrender, in addition to accrued reversionary bonuses. Its declaration depends on the insurer's surplus and investment performance, so it cannot be guaranteed at policy inception.

  1. AA bonus declared only on policies that lapse before the first premium due date
  2. BA bonus that may be paid at maturity, death or surrender, in addition to the accrued reversionary bonuses, depending on insurer's experienceCorrect
  3. CA discount on premium given to policyholders paying annually instead of monthly
  4. DA bonus that is guaranteed at policy inception and fixed for the full term

Explanation

Terminal bonus is a non-guaranteed amount payable at exit events (maturity, death or, in some cases, surrender) over and above the reversionary bonuses already added. It depends on the insurer's surplus and investment experience. The option describing a guaranteed bonus is wrong because terminal bonus is discretionary.

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