Understanding Terminal and Special Dividends
Learn about terminal and special dividends in life insurance and their role in enhancing coverage—key insights for better policy decisions.
What is a Participating Policy?
Participating policies are commonly found in market products such as Whole Life Insurance , Whole Life Critical Illness insurance, and other long-term insurance products. In addition to providing standard life or critical illness coverage, insurance companies distribute bonuses to policyholders to share the product profits.
Bonuses, also known as non-guaranteed benefits , are not guaranteed to be paid and are generally determined based on factors such as the insurance company’s investment strategy and performance, claims experience, and operating expenses. Therefore, the bonuses ultimately received by policyholders may be higher or lower than the expected returns outlined in the policy sales documents. In extreme cases, non-guaranteed bonuses could be zero .
What is a Terminal Bonus/Special Bonus?
Bonuses distributed by participating policies are generally divided into annual bonuses (also known as cash bonuses), reversionary bonuses (also known as attaching bonuses) , and terminal bonuses (also known as special bonuses).
Terminal Bonus/Special Bonus is a one-time bonus that the insurance company pays when the policy terminates (such as upon death, surrender, or policy maturity) . The terminal bonus/special bonus does not accumulate in the policy; its amount may be adjusted each time it is announced, and the insurance company only determines the actual amount at the time of distribution.
Is Terminal Bonus/Special Bonus a Guaranteed Return or Non-Guaranteed Return?
As mentioned above, terminal bonus/special bonus is one of the non-guaranteed returns in participating policies. Its value fluctuates based on factors such as the insurance company’s investment performance and operating expenses, with the actual amount determined only at the time of distribution.
Terminal Bonus/Special Bonus Fulfillment Rate
(Actual distributed terminal bonus / Terminal bonus shown in the benefit illustration at the time of sale) x 100%
The bonus fulfillment rate (also known as: fulfillment ratio ) may be affected by various factors such as investment returns, claims, surrender rates, and administrative expenses.
- If the fulfillment rate is close to 100%, it means the insurance company has nearly met the expected terminal bonus at the time of sale
- If the fulfillment rate > 100%, it means the actual terminal bonus distributed by the insurance company is higher than the expected amount provided to the policyholder at the time of sale
According to the current regulations of the Insurance Authority, insurance companies must disclose the bonus fulfillment rate, and the authority also provides a comprehensive list of web pages where major insurance companies publish their bonus fulfillment rates .
Calculating Terminal Dividend / Special Dividend Realization Rates: Examples
The following simple examples illustrate how to calculate and understand the terminal dividend / special dividend realization rate:
| Example | Projected Terminal Dividend / Special Dividend Total in Benefit Illustration at Sale | Actual Distributed Terminal Dividend / Special Dividend Total | Terminal Dividend / Special Dividend Realization Rate |
| 1 | $1,000 | $1,000 | 100% |
| 2 | $1,000 | $1,200 | 120% |
| 3 | $1,000 | $900 | 90% |
Why 'Buy Term and Invest the Rest' is More Secure Than Investment Savings Type Whole Life Insurance
In addition to choosing whole life insurance with lower guaranteed return rates (you can use Bowtie’s exclusive BTIR Calculator , to understand the actual return levels of these policies) , you can consider the ‘Buy Term, Invest the Rest’ strategy, which involves purchasing pure protection term life insurance and pairing it with short-term savings insurance or other investment products that offer higher guaranteed returns. This approach allows you to achieve life insurance coverage and substantial savings returns at a lower premium cost.
Bowtie Term Life is a term life insurance product that provides a lump-sum payout to beneficiaries upon the insured’s death. Its key features include:
- Pure protection with no savings component
- Up to 40 times higher coverage for the same premium compared to typical savings life insurance products*
- As low as $38 per month for $1 million in coverage
- * Based on the standard premium calculation for a 35-year-old non-smoking female insuring a $1 million coverage; Term Life Insurance: Data as of July 1, 2020, for standard premiums of term life insurance (20-year coverage period) in the market
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