A bonus is essentially the company sharing its profits with chosen policyholders.
Life insurance
A life insurance policy can offer more than financial support during difficult times. The right life insurance policy can also provide bonuses during its tenure and after. There are certain life insurance plans, such as participating plans, where the policyholder receives a specified bonus from the insurance company. A bonus is essentially the company sharing its profits with chosen policyholders.
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Looking to learn more about bonuses in your life insurance plan and how they work? Here’s a guide.
1. Reversionary Bonus
This bonus adds extra value to the total amount payable to the policyholder (or the nominee, as applicable). The reversionary bonus is calculated on the sum assured and is based on the policyholder’s allocation of the profits payable. The company declares this bonus at the end of the financial year. However, it is paid fully when a claim arises. There are two types of reversionary bonuses in a participating life insurance plan:
2. Simple Reversionary Bonus
It is calculated as a percentage of the sum assured amount.
3. Compound Reversionary Bonus
It is calculated as a percentage of the sum assured as well as the previously accrued bonuses.
4.Cash Bonus
Paid at the end of the year rather than at the maturity, a cash bonus is calculated as a percentage of the premium. So, if the premium is ₹25,000 and the cash bonus rate is 5%, the yearly bonus will be ₹1,250.
Knowing the premium beforehand can give you an idea of the cash bonus as well. Tools like the life insurance calculator give you an estimate of the premium so you can make better financial decisions in the long run.
5. Interim Bonus
This type of bonus is declared when the policy matures, or a death benefit claim is raised between two bonus dates. So, let’s assume one bonus is declared in June and the next is to be declared in June of the next year. However, the policyholder passes away in November. Here, the company will declare an interim bonus. It will be calculated on the basis of the days from the last bonus date.
6. Terminal Bonus
As its name suggests, this bonus is paid for policies which have reached their termination, i.e., their maturity. It is not paid if the policyholder surrenders the plan.
Note that some bonuses might be a guaranteed feature of your insurance plan, while others may not be. It is best to confirm the same with your insurer when you buy the life insurance.
Conclusion
The right life insurance plan can offer you financial support in critical times. Its bonus component goes a step beyond and gives you a financial boost in your yearly budget as well.
To make the most of bonuses, you can choose to buy a life insurance plan that offers a participating feature, wherein you get to enjoy the company’s profits.Have a discussion with your insurance provider at length about their bonuses and use tools such as the life insurance calculator to make a well-informed decision.
Bonus rate may vary from time to time based on Company’s Investment Performance.
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