Guide to Life insurance bonuses
Life insurance plans also have a bonus which an insured person gets over and above the sum assured. The bonus payment is done from the profits recorded by the insurance company.
When the policyholder gets a bonus?
A life insurance bonus is usually being distributed during the completion of the financial year.
Who all are eligible for a bonus?
A bonus from an insurance company is not given to all the policyholders. A policyholder is eligible for a bonus based on the type of insurance policy they are having. Traditional insurance policies like money-back policies or endowment policies can be categorized as with-profit policies and without-profit policies.
What is the difference?
With-profit policies are those in which bonus is given to a policyholder while without-profit policies do not offer any bonuses to an insured person. Policies that do not qualify for bonus payments are available at a lower premium.
Bonus or Guaranteed Addition
In some of the with-profits policies, there are no bonus payments done. Instead of that, the insurer will provide the insured a Guaranteed Addition (GA) in the policy. Unlike the bonus, a Guaranteed Addition is an assured supplement to a policy. A policyholder will be informed about a Guaranteed Addition at the time of buying a Life Insurance plan.
How is the bonus calculated by the Life Insurance company?
There are mainly two ways to calculate the bonus:
- As a specific amount per Rs. 1,000 of the Sum Assured
- As a percentage of the Sum Assured
Example
Assume that the bonus for a policy is Rs. 30 for every Rs. 1,000. If a Life Insurance policy has a Sum Assured value of Rs. 1 lakh, the bonus will be Rs. 3,000. Let us assume the term of this policy to be 10 years. On maturity of the Life Insurance policy, the total accumulated bonus will add up to Rs. 30,000.
In case of the demise of the policyholder during the policy term, the insured person’s chosen nominee is given the Sum Assured and the bonus accrued, until the year of the policyholder’s death.
Types of Bonuses
Simple Reversionary Bonus
In this type of bonus, a certain bonus value is added regularly to the policy. It is the case of mostly traditional Life Insurance policies. These bonus amounts continue to accrue until the policy matures.
Compound Reversionary Bonus
A compound reversionary bonus is when a bonus amount is announced based on the Sum Assured, including the previous year’s bonus. In this case, you can avail of the bonus only once the policy reaches maturity or on the demise of the insured.
Interim Bonus
A bonus is generally announced during the completion of the financial year. Then the insurance provider declares an interim bonus in that scenario where an insurance policy matures before the end of the financial year or in case of the insured person’s demise during the term of the policy.
This is done to ensure that the policyholder does not face any drawbacks. However, the value of the bonus is included in the insurance policy on a pro-rata basis for the relevant year.
Terminal Bonus
This type of bonus is added to a policy only at the time when the policy matures, or the insured person dies. A terminal bonus is a one-time bonus.
I hope here you find out everything about bonus payments on your policy from the insurance provider.
