Reversionary bonus meaning

A reversionary bonus is an addition to the policy’s guaranteed sum assured under a with‑profits life assurance contract, declared out of the insurer’s surplus (distributable profits), typically each year. Once declared (vested), it attaches to the basic sum assured and becomes guaranteed, increasing the amount payable on death or maturity and usually influencing surrender and loan values, subject to the policy terms. Reversionary bonuses are commonly set as simple or compound annual rates per £100 or per £1,000 of sum assured. They are distinct from a terminal (final) bonus, which remains non‑guaranteed until the claim event. The term is not defined in legislation; it is an established insurance practice expression used in policy conditions and recognised in case law and regulatory materials. In the UK, with‑profits firms disclose how bonuses are determined in their Principles and Practices of Financial Management; similar practice applies in Ireland. The insurer retains discretion whether to declare bonuses and at what level, having regard to surplus, smoothing and solvency, but once declared they cannot ordinarily be reduced or withdrawn except where expressly permitted by the contract. Usage and legal effect are broadly consistent across England and Wales, Scotland, Northern Ireland and Ireland.