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📋 '''Bonus (insurance)''' refers to an additional benefit allocated to a [[Definition:Policyholder | policyholder]] beyond the guaranteed terms of an [[Definition:Insurance policy | insurance contract]], most commonly encountered in [[Definition:Life insurance | life insurance]] and [[Definition:With-profits policy | with-profits]] products. In participating life policies — widely sold across markets including the United Kingdom, India, Japan, and parts of Continental Europe — the insurer declares periodic bonuses that reflect the [[Definition:Investment income | investment returns]], [[Definition:Mortality | mortality]] experience, and expense performance of the underlying fund. The term also applies in [[Definition:General insurance | general insurance]] contexts, where "bonus" may describe [[Definition:No-claims bonus | no-claims discount]] accumulations or profit-sharing arrangements in certain commercial programs.

⚙️ The mechanics vary depending on the product and jurisdiction. In traditional with-profits life insurance, a [[Definition:Reversionary bonus | reversionary bonus]] is added to the policy's [[Definition:Sum assured | sum assured]] once declared and typically cannot be taken away, compounding over the life of the contract. A [[Definition:Terminal bonus | terminal bonus]] may be added at maturity or death to reflect the final distribution of surplus. The timing and magnitude of bonus declarations depend on the insurer's [[Definition:Actuarial | actuarial]] assessment of distributable surplus, governed by local regulations — the UK's [[Definition:Prudential Regulation Authority (PRA) | PRA]] principles of treating customers fairly, India's IRDAI surplus distribution rules, and Japan's regulatory framework for dividend-paying policies each impose different constraints on how surplus flows to policyholders. In [[Definition:Motor insurance | motor insurance]], the no-claims bonus operates differently: it rewards claim-free years with escalating [[Definition:Premium | premium]] discounts, functioning as a behavioral incentive rather than a profit-sharing mechanism.

💡 Bonuses carry significant implications for both policyholders and insurers. For policyholders, the bonus history of a with-profits fund is a key indicator of long-term value; for insurers, the obligation to honor declared reversionary bonuses creates a form of embedded guarantee that must be carefully managed within [[Definition:Asset-liability management (ALM) | asset-liability management]] frameworks and [[Definition:Solvency | solvency]] calculations. Regulatory regimes such as [[Definition:Solvency II | Solvency II]] require insurers to model the impact of future discretionary bonus obligations on their capital positions, distinguishing between guaranteed and non-guaranteed components. Getting the bonus strategy right is a delicate balancing act — declare too generously and the fund's sustainability is at risk; declare too conservatively and the product loses its competitive appeal against [[Definition:Unit-linked insurance | unit-linked]] alternatives that offer more transparent investment exposure.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:With-profits policy]]
* [[Definition:No-claims bonus]]
* [[Definition:Life insurance]]
* [[Definition:Sum assured]]
* [[Definition:Asset-liability management (ALM)]]
* [[Definition:Participating policy]]
{{Div col end}}

Definition:Bonus (insurance) - Revision history

PlumBot: Bot: Creating new article from JSON