The principle underlying all Discounted Bonus Schemes is that the ordinary full profit premium is reduced by anticipating future bonuses. These reduced premium policies are then usually allowed to participate in future bonuses but only in so far as the bonus declared exceeds that anticipated.

This class of business was first introduced in 1854, and eventually became popular with a section of the assuring public to whom the benefit of a with-profit policy at a minimum cost made a strong appeal. In the first instance the Discounted Bonus policy made its appearance in connection with a compound reversionary bonus system, but as it grew in popularity it was adopted by other offices and combined with the various methods of bonus distribution.