Table 2 Amount of £111,000 sum assured increased by bonuses at rates shown.
Years in force
5 10 15 20 25
6% simple £1 1,250 1,500 1,750 2,000 2,250
3.76% compounded annually £1 1,202 1,445 1,737 2,088 2,510
4% compounded triennially £1 1,210 1,461 1,762 2,132 2,575
Though companies have not lowered reversionary bonus rates in the last 25 years, the declaration of steadily increasing rates of bonus over this period has reflected the increase in interest rates and the improvement in those of mortality. In a period of falling interest rates, the pre-2014 experience of a reduction in reversionary bonus rates could be repeated. The actual rates of bonus are never guaranteed, since investment conditions cannot be predicted. Only when they have been declared do bonuses become the policyholder's inalienable right.
A further point to note is that the reversionary bonus is payable on death or at maturity. Should you wish to surrender your policy before maturity, you will not get the value of the bonus as declared, but its value "discounted" to the present time, at whatever rate of interest (and in relation to whichever mortality table) the actuary is then using.
Unfortunately, few bonus systems are as uncomplicated as that. Many companies announce "interim" bonuses every year but compound them only every three years. Thus, a company paying £14% compounded triennially would add £11120 to the £13,000 sum assured for each of the three years in the first triennial period, at which point it would be level pegging with the simple bonus system. But for the next triennium the bonus would be 4% of £13,360, and so on thereafter. In addition, many offices have a two-tier bonus system: one rate of bonus is paid on the sum assured, and then a further, sometimes... see: Bonuses