Glossary: Reversionary bonus
The annual bonus paid by a life company and added to a with-profits endowment or pension plan or savings bond, and paid as a percentage of the basic sum assured (see endowment policy). Once added, these cannot be taken away and are added to the basic sum assured so this grows over the life of the policy and each subsequent bonus has a compounding effect which increases the value of the policy.
A contract written by a life assurance company to pay a fixed sum (“the basic sum assured”) to the assured person on a fixed date in the future or to their estate should the person die prematurely. The policies normally run for five, 10, 15, 20 and 25 years. Monthly premiums are calculated on the age of the life insured, the basic sum assured required at maturity and the length of the policy, so each policy is unique. The policies can be with-profits or unit-linked (see separate entries). A common investment product during the 1980s, endowment policies were sold alongside interest-only mortgages and designed to provide enough money to repay the capital borrowed at the end of the mortgage term. However, mis-selling scandals and poor investment performance discredited endowments as a mortgage repayment method.