The new offer may be cancelled if the fund surplus falls below £1.2bn
Insurance group Aviva has halved its offer to policyholders for a share of the company's surplus investment funds.
Last year's offer of £1bn, to one million policyholders, was dropped in February because of the plunging value of investments.
The policyholders in two with-profits funds are now being offered £500m of the firm's "inherited estate".
But the offer may rise according to the value of investments between June and August this year.
"We believe that giving customers the opportunity to benefit from a reattribution is the right thing to do and each one of them will have the opportunity to choose whether to accept our offer," said Mark Hodges, chief executive of Aviva's UK Life business.
"This is in addition to the special bonus of £2.1bn allocated to policyholders at the beginning of 2008, of which two-thirds has already been added to policies."
The deal relates to the CGNU Life and CULAC with-profits funds, which over the past few decades have built up a larger-than-necessary financial cushion.
The investors are mainly people with endowment policies, pension policies and with-profits bonds.
The estimated surplus in the funds has fallen from £2.1bn in July last year to £1.4bn as at the end of March 2009.
Under the original offer made last year, about 700,000 people would have been offered between £400 and £1,000, with another 220,000 being offered between £1,000 and £3,500.
But the new flexible offer is structured differently.
Assuming the surplus funds are worth a minimum £1.2bn, then £500m will be offered to the policyholders.
That means that 900,000 people will be offered cash payments of between £200 and £1,000, with the remaining 100,000 savers being offered more.
With potential fluctuations in the value of the surplus funds, the actual payout will be based on the average value of the inherited estate in the three months leading up to September, when the deal will be ratified by the High Court.
"If the value of the estate is higher at the effective date of the reattribution then policyholders will automatically receive a bigger payment," Aviva said.
However the insurer warned that if the value of the estate fell below that £1.2bn level then the offer would be cancelled, on the grounds that the deal was neither in the interests of the company or the investors.
The payments are scheduled for November 2009.
Clare Spottiswoode, the policyholder advocate who has been negotiating with Aviva on behalf of the policyholders for the past three years, praised the revised offer.
"This is good news for policyholders after the turmoil in the financial markets that affected the plan announced last year," she said.
"This offer is also good for the great majority of policyholders under the FSA's current rules," she added.
If the funds are eventually worth £1.4bn - which Aviva says was the case at the end of March - then the payout will increase to between £244 and £1,150 for the first 90% of policyholders, while the remaining 10% would be offered higher payouts.
There will be no vote on the deal and each individual policyholder can decide either to accept or not.
Technically, the investors are being offered cash from the shareholders' own funds in Aviva, in return for surrendering any right to a future share in the inherited estate itself.
However, Aviva has previously said that any such direct carve-up of the inherited estate is unlikely.
The consumers' association Which? said it was disappointed by the cut in the proposed payout, and accused the Financial Services Authority (FSA) of not defending policyholders' interests.
"Which? believes the FSA effectively looked the other way while Aviva plundered the inherited estate to pay shareholder tax bills, subsidise new business, [and] pay mis-selling compensation costs when the company broke the rules," said Which? chief executive Peter Vicary-Smith.