All About Bonus In Life Insurance Policy

One of the most important decisions you will make in your life is choosing the right life insurance policy. This decision becomes even more important if you have dependents or a spouse. With so many different types of policies to choose from, it can be difficult to know which one is best for you and your family. The good news is that we are here to help you find the perfect policy for your needs!

The best life insurance policy safeguarding your family's financial needs. It provides a sum assured to the nominee in case of the unexpected death of the insured. Insurers provide add-on rider benefits to enhance the benefits of an insurance policy. It can also provide additional bonus amounts too. Bonus in life insurance is exclusively an extra amount paid above the sum assured amount. The bonus is available to the customers based on the policies they hold.

What is a Bonus in Life Insurance?

The bonus is a sum of money that the insurance company pays to the insured person when reaches certain milestones. This amount is paid out by the insurer to the policyholder at the time of either maturity or sudden demise. In short, a bonus in a life insurance policy is an additional sum of money received on top of the base payment. This bonus payment is payable in addition to any life insurance policy payouts.

How to Calculate Bonus in Life Insurance?

The insurers use the premiums of all policyholders to build a corpus for settling the claims of the beneficiaries. One major way an insurance company generates profits is by investing premiums into bonds or debt instruments and then reinvesting the profits. Another way they generate funds is by investing a small slice of our assets in equities, which tend to provide higher levels of profit. A comprehensive valuation of investment returns and insurance liabilities is carried out at the end of every financial year.

The bonus rate is calculated after a detailed review of factors like return on underlying assets, the average of previous bonuses declared, claims filed, and the status of financial markets. To qualify for this bonus, the policy should be either a participating type or a 'with profits' type.

Different Types of Bonus in Life Insurance

Life insurance is a type of insurance that can help protect you and your family in the event of your death. There are different types of bonuses in life insurance. Here are the different types of bonuses offered with life insurance policies.

  • Simple Reversionary Bonus
  • Compound Reversionary Bonus
  • Cash Bonus
  • Interim Bonus
  • Terminal Bonus

Simple Reversionary Bonus

This type of Bonus declaration usually happens once a year. This bonus is instantaneously added to the value of your policy. They are only paid when the policy matures or when someone dies.

For example, you have a life insurance policy that offers a sum assured of Rs. 10 lakhs. Your policy offers a simple reversionary bonus at the rate of 5% of the sum assured. Now, you will be eligible for a bonus of Rs. 50,000 each year.

Compound Reversionary Bonus

A compound reversionary bonus is very similar to a simple reversionary bonus, with the exception that it applies the percentage not only to the sum assured but also to any previous bonuses. This bears some similarities with compound interest.

For example, you have a life insurance policy that offers a sum assured of Rs. 10 lakhs. Your policy offers a compound reversionary bonus at the rate of 5% of the sum assured. Now, you will be eligible for a bonus of Rs. 50,000 for the first year. For the second year, it will be calculated along with bonus amounts like

Financial year Sum Assured Bonus
1st  year Rs.10 Lacs Rs.50000
2nd Year Rs.10.5 Lacs Rs.75000( 5% of 10.5 Lacs)

Cash Bonus

Cash bonuses are an important part of a life insurance policy. They are added as a benefit to the policy and can be used for various purposes.  A cash bonus is given to the policyholder every year and it is calculated as a percentage of the yearly premium.

For example, if you have a life insurance policy that offers a sum assured of Rs. 10 lakhs and cash bonus rate is 4% and the annual premium is Rs. 15,000, then the bonus paid to the policyholder will be Rs. 600 (4% of 15,000).

Interim Bonus

An interim Bonus is paid on those policies that mature or are claimed between two bonus announcement dates. While the policy has already accumulated a bonus from the previous year, there is a gap between the bonus declaration date and maturity date of the policy. In such a case, the insurance company calculates the bonus based on interim policy rates.

For example, if your policy matures in Oct 2025. You would have earned your last reversionary bonus at the end of the financial year 2024-25. But what about the 7 months since then, from April 1, 2025, to October 31, 2025? Here's where an interim bonus becomes relevant. If a claim is raised between two successive bonus declaration dates, insurers calculate the interim bonus for the period from the last bonus date. This is done to ensure that policyholders or their nominees do not miss out on any benefits.

Terminal Bonus

A terminal bonus is a benefit paid out at the end of the policy term. It's for those who've maintained coverage till maturity, so it might also be called a persistency bonus. Since it is only paid at the end of the policy term, you will generally not be eligible for the terminal bonus if you surrender your policy in advance. However, some life insurance plans may also offer a terminal bonus on surrender, subject to certain conditions such as

  • The policy is still in active
  • All due premiums have been paid
  • The first 5 policy years have been completed

What are the Things to Remember When It Comes to Bonuses in Life Insurance Policies?

Life insurance is a type of insurance that guarantees to provide benefits to the policyholder or their beneficiaries in case of death. The life insurance policy can be purchased by an individual, group, or employer.

The life insurance company pays for the premiums and agrees to pay the benefit amount in case the insured dies during the term of coverage. There are several things that you should remember when it comes to bonuses in life insurance policies. These include:

  • You should know what your current coverage is and how much you have already paid for it before going shopping for another policy.
  • It is important that you consider a variety of factors when looking at buying a new policy such as your age and health status.
  • You should ensure that you have all your medical records on hand before signing up for a new policy.
  • You need to make sure that your current coverage doesn't run out before signing up for a new policy.
  • Make sure you read the contracts closely and make sure your understanding of what they say is accurate.
  • It is essential to be aware of how the policy will work if you are no longer able to maintain that specific coverage.

How to Buy the Best Life Insurance Policy?

The process of buying life insurance online has become simple with PolicyBachat. For buying a life insurance plan online please visit the PolicyBachat portal and follow the below steps.

  • Step1: Enter the details such as Gender, Annual income from all sources, Alcohol consumption and tobacco consumption, Salaries or Self-employed, and Date of Birth. After this, you need to enter your contact details to facilitate a call from our agent.
  • Step2: Now the premium from different insurance companies will be displayed on the screen. You can edit the details such as Coverage, Term, Premium payment method, Mode of claim settlement, etc., and submit the details to get the desired premium. The premium can be changed by changing other factors such as Coverage required, mode of payment, etc.
  • Step3: The next step is to select the best term insurance plan and pay the premium to the insurance company via online payment mode.

Conclusion

Life insurance is a necessary purchase for most people. But before getting a life insurance plan, know all about the bonus in life insurance policies and the insurer's payment structure. It will help in making better decisions based on additional profits.

Compare life insurance plans online and enjoy all the benefits such as bonus facility, life coverage, returns, additional income, etc. PolicyBachat is an online insurance web aggregator where you can compare different types of life insurance policies with different insurers in one place.

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