Definition
Reversionary Bonus
A reversionary bonus is an annual bonus added to a participating life policy's sum assured that becomes payable on death or maturity.
Declared each year by the insurer based on the par fund's performance, a simple reversionary bonus is calculated on the original sum assured, while a compound reversionary bonus is calculated on the sum assured plus bonuses already accrued. Once vested, these bonuses cannot be taken away.
In India, LIC and traditional insurers express the bonus as an amount per ₹1,000 of sum assured. The bonus only crystallises into cash at a claim or maturity event; it is not a yearly cash payout. A surrender before maturity typically pays only a discounted portion of accrued bonuses.
Related terms
- Endowment PlanAn endowment plan is a life insurance policy that combines a death benefit with a lump-sum savings payout at maturity if the policyholder survives the term.
- Participating PolicyA participating (par) policy is a life insurance plan whose holders share in the insurer's surplus through bonuses declared periodically.
- Terminal BonusA terminal bonus is a one-time, non-guaranteed bonus paid at maturity or on a death claim of a long-running participating policy, on top of reversionary bonuses.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.