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

In a traditional participating endowment policy, what is a 'terminal bonus' (also called final additional bonus)?

A terminal bonus is a one-time, non-guaranteed bonus paid when the policy matures or on death, and sometimes on surrender, depending on the insurer's experience. It differs from reversionary bonuses, which are declared annually and added to the sum assured as a vested benefit.

  1. AA bonus declared every year that is added to the sum assured and cannot be withdrawn later
  2. BA one-time bonus paid on maturity, death or in some cases surrender, depending on the insurer's experienceCorrect
  3. CA bonus paid only if the policyholder pays all premiums in advance for the full term
  4. DA refund of the first-year premium on completion of the policy term

Explanation

Terminal bonus is a non-guaranteed, one-time amount payable at exit events such as maturity or death, based on the insurer's performance. Reversionary bonuses are the ones added annually and then become guaranteed once declared, which is why the first option describes a different bonus.

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