Definition
A reversionary bonus is an additional amount added to the death or maturity payout of a with-profits life assurance policy. This bonus is only applicable if the insurance company achieves a financial surplus or earns a profit from investing its life funds. Once declared, a reversionary bonus becomes a guaranteed part of the policy benefits, provided the policy either reaches maturity or is claimed upon the death of the insured. Premature cashing of the policy often leads to a reduced bonus, adjusted based on the remaining term of the policy.
Importance
The reversionary bonus serves as a sweetener to the somewhat bland world of life assurance, making policies more attractive to current and potential policyholders. It’s the financial world’s version of a cherry on top—not essential, but definitely more delightful.
Financial Incentives for Policyholders
The addition of a reversionary bonus is akin to hitting a mini jackpot in the casino of life—as long as you keep playing the game by continuing the policy until its due expiration, you get to collect the bonus. It encourages policyholders to maintain their policies longer, thereby supporting the insurer’s financial stability.
Company Profit Sharing
Think of the reversionary bonus as your slice of the financial pie. If the insurance company does well, so do you. It’s like being in a genteel partnership where profits made from managing collective funds directly benefit the members—not a common practice in all walks of business.
Related Terms
- With-Profits Policy: An insurance policy that combines investment with insurance. Returns include bonuses such as the reversionary bonus.
- Maturity Benefit: The amount payable at the end of a life insurance policy period, sometimes boosted by bonuses like the reversionary bonus.
- Death Benefit: The sum paid on the death of the insured, which includes basic sum assured along with any bonuses such as the reversionary.
- Insurance Surplus: Reflects the profitability of an insurance company, directly influencing the potential distribution of reversionary bonuses.
Suggested Reading
For those hungry for more on how to dine out on financial bonuses and other sweeteners, these books might just whet your appetite:
- “The Intelligent Investor” by Benjamin Graham - Although not directly about life assurance, Graham’s principles of investment can illuminate the workings behind profit allocations like the reversionary bonus.
- “Life Insurance” by Kenneth Black Jr. and Harold D. Skipper Jr. - This book provides a deep dive into the mechanics of life insurance products, including with-profits policies.
As Penny Profiteer never tires of saying, understanding the particulars of your insurance policy can sometimes feel like deciphering an ancient scroll—if you know what to look for, treasures like the reversionary bonus reveal themselves. Stay informed, stay insured, and may your financial future be ever prosperous!
