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

Under a traditional participating endowment plan issued by an Indian life insurer, what is the 'reversionary bonus' once it has been declared and added to the policy?

A declared reversionary bonus is added to the sum assured of a participating policy and is paid on death or maturity. Once vested it is generally guaranteed and not withdrawn. It is not a yearly cash payout or a premium rebate, so the second option is correct.

  1. AIt is a bonus that can be withdrawn by the policyholder every year in cash without affecting the benefit
  2. BIt is added to the sum assured and becomes payable on death or maturity, and is generally not taken away once vestedCorrect
  3. CIt is a one-time bonus paid only if the policyholder survives beyond the maturity date
  4. DIt is a discount on the premium given for paying the premium in advance

Explanation

Reversionary bonus is declared periodically out of the surplus of the participating fund and is added to the sum assured. Once declared, it is payable on death or maturity. It is not an annual cash payout, and it is unrelated to a premium discount.

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