Definition
Terminal Bonus
A 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.
Also called a final additional bonus, the terminal bonus rewards policyholders who keep a par policy in force for a long duration and is meant to share gains the insurer realised over the policy's life that were not distributed as annual bonuses.
It is entirely at the insurer's discretion and is usually only payable after the policy has run for a minimum number of years. Because it is not guaranteed and can vary significantly, illustrations that include large terminal bonuses should be treated cautiously when comparing par plans.
Related terms
- Participating PolicyA participating (par) policy is a life insurance plan whose holders share in the insurer's surplus through bonuses declared periodically.
- Reversionary BonusA reversionary bonus is an annual bonus added to a participating life policy's sum assured that becomes payable on death or maturity.
- Maturity BenefitThe maturity benefit is the amount a savings-linked life policy pays the surviving policyholder when the policy term ends.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.