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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 the 'reversionary bonus' once it has been declared and added to the policy?

A reversionary bonus is declared by the insurer from the surplus of a participating policy and added to the sum assured. Once vested, it is payable on maturity or death and is generally not taken back, which distinguishes it from terminal bonus.

  1. AIt is paid only if the policyholder surrenders the policy within the first year
  2. BIt is added to the sum assured and becomes payable on maturity or death, and is generally not taken away once vestedCorrect
  3. CIt is a refund of premiums paid for the rider benefits
  4. DIt is a bonus that can be withdrawn by the insurer if profits fall in later years

Explanation

Reversionary bonus is declared periodically and added to the guaranteed sum assured. Once vested it is payable at maturity or on death. The insurer cannot normally withdraw it later, so the option about withdrawal is wrong.

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