Where do you see this?
Life insurance policies.
What does it mean?
The terminal bonus is given at the end of the life of traditional policies like whole life and endowment. It is a loyalty bonus to reward policyholders for keeping their plans till maturity. Its value is not guaranteed and will not be known until the policies mature.
It is different from the reversionary bonus, which is paid out annually by insurers.
Generally, bonuses come from investing part of the premiums you pay every year on your life insurance policy.
Why is it important?
For certain plans like endowments, the terminal bonus is expected to form a significant portion of the final payout.
However, the amount of the terminal bonus is dependent upon the investment conditions prevailing at the time of maturity, as well as the investment performance of the insurer.
With the market falling over the past year, it was reported that insurers are cutting terminal bonuses to reflect the poor performance. Many consumers who have policies maturing this year are feeling shortchanged.
So you want to use the term. Just say...
'I don't expect a good terminal bonus when my insurance policy matures this year, given the poor market conditions.'
This article was first published in The Straits Times.