A Guide To Life Insurance - Terminal Bonus ....


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Terminal Bonus...

Since the 2009 many companies have introduced yet another category, the terminal bonus, also sometimes called a capital bonus. This is usually paid as an addition to reversionary bonuses and is declared and payable only at maturity or death.

Its original purpose was to allocate capital gains over the life of the policy, and since market prices can change substantially, it was also held that terminal bonus rates would alter to take account of these movements.

In practice, however, companies using terminal bonuses have split into two camps, those that do adjust them according to market experience (some of these, for example, raised their terminal bonus rates substantially in 2002 when the stock market was high and lowered them sharply in 2009 when it was low) and those that have chosen to maintain terminal bonus rates at a specified and unchanging level.

Clearly in comparing policies with reference to future values it is necessary to know which attitude a company adopts.

Terminal bonuses are declared in two ways.

Some companies declare them as a percentage of the sum assured for each year or number of years a policy has been in force, for example, 1% of the sum assured for each policy year.

Others declare them as a percentage of the total bonuses already allocated to the policy, for example, 20% of all bonuses attaching.

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With all these different bonuses and variations, it is easy to get confused.
But as far as the individual is concerned the main thing to realise is that the different systems are all aimed at the same thing, distributing the surplus achieved by the life insurance company according to the success (or otherwise) of its investment management.
When quotations are obtained, it will often be found that two or more offices with different bonus systems will quote very similar estimates of........ see: click here for Unit Linking


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