When you opt for a life insurance policy, such as an endowment policy, you get a certain amount payable over and above the benefits of life insurance applicable. This is the bonus amount which gets accumulated under the participating policy on a yearly basis, and is payable on the death of the life assured, at maturity of the plan, or if the plan is surrendered. These participating policies are involved in the investment profits of the insurance company, which is then shared in the form of bonuses with the policyholders.
There are different types of bonuses available under different life insurance policies. Here are the four common types of bonuses you get under a life insurance policy:
This is a bonus which adds value to the total amount payable to the nominee or policyholder. It is generally declared at the end of every financial year, and it is payable at the time of your claim. Reversionary bonus has two types:
- Simple Reversionary: This reversionary bonus is calculated in the form of a percentage of the sum assured. The declaration of this bonus is as per thousand of the sum assured every year. Let’s say, the simple reversionary bonus is Rs. 70 per thousand of the sum assured, and the sum assured of the life insurance policy is Rs. 10 lakh, then the calculation would be as follows:
70 x [10,00,000 ÷ 1000] = Rs. 70,000/-
Therefore, the bonus would be seventy thousand rupees.
- Compound Reversionary: This type of reversionary bonus is also calculated in the form of a percentage of the sum assured. However, along with the sum assured, it also applies to all the accrued bonuses earlier available in the policy. Each year’s bonus is added to the sum assured and the next year’s bonus is computed on that total amount. Moreover, due to the compounding effect, these bonuses increase with time. Let’s say, the compound reversionary bonus is declared at 7% for the policy term and the sum assured is Rs. 10 lakh, then this would be the calculation:
During the first year, the accrued CRB will be 7% of 10,00,000, which is Rs. 70,000. In the second year, this Rs. 70,000 will be added to the sum assured of Rs. 10,00,000, and now it would be 7% of [10,00,000 + 70,000] = Rs. 74,900. So the compound reversionary will increase every year due to the compounding effect.
Generally, bonuses are declared at the end of the financial year. However, the interim bonus comes into the picture in case a policy matures or death occurs in between two successive bonus declaration dates. This type of bonus is calculated for the days remaining from the last bonus date.
As the name suggests, terminal bonus is the final bonus that is declared and is payable only for policies which attain maturity. It is the bonus which policyholders receive for keeping the policy till its maturity date. If a life insurance policy has acquired paid-up value or has been surrendered, then this bonus is not applicable.
This is a type of bonus that is payable on a yearly basis, instead of at the maturity. At the end of every financial year, this bonus is accrued and payable in cash.
So these are various types of bonuses you can avail under life insurance policies. However, depending on the insurer and the type of life cover you have opted for, they may vary. It is good to check the types of bonuses that are applicable in your life insurance policy in the brochure or with the agent. Also, use a life insurance premium calculator along with checking the bonuses to get a clear idea before buying your next insurance policy.