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

Under a traditional participating endowment plan sold by an Indian life insurer, what does the 'reversionary bonus' represent once it has been declared?

A reversionary bonus is a bonus declared by a participating policy insurer and added to the sum assured. Once declared it is payable on maturity or earlier death and is generally not withdrawn. It is not linked to NAV and is not restricted to death claims.

  1. AA bonus paid only if the policyholder dies during the policy term
  2. BA bonus added to the sum assured that becomes payable on maturity or death and is generally not taken away once vestedCorrect
  3. CA discount on future premiums that lapses if not claimed in the same year
  4. DA bonus linked to daily NAV movement of the underlying fund

Explanation

Reversionary bonus is declared periodically and added to the sum assured. Once declared it is guaranteed to be paid at maturity or death. Option 0 is wrong because it is paid on maturity as well. Option 3 describes a unit-linked feature, not a participating plan.

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