Insurance bonus

‘Bonus’ in insurance parlance refers to the benefit over and above the cover and the maturity amount. There are broadly three types here — reversionary bonus, loyalty bonus and terminal bonus.

Terminal bonus is the benefit offered by insurers when the policy matures. You may see this is in both ULIPs and traditional policies. Loyalty bonus is given to policyholders who stay for a term of 10 or more years. Endowment policies as well as ULIPs offer this bonus.

Reversionary bonus is only in the life policies where there is an investment-insurance combo. It is declared as a percentage of sum assured.

The amount of the bonus, until declared, is not guaranteed. The bonus declaration every year is a decision made by the company’s board based on the amount of profits (surplus) for the year.

The bonus is paid along with sum assured (on death) or with the maturity amount at the end of the policy tenure. Since the returns on endowment policies depend on the bonus and while signing up for the policy, one should look into whether it is a ‘simple’ or a ‘compound’ reversionary bonus. In the former, bonus is a percentage of the basic sum assured, but in the latter, it is a percentage of the original sum assured plus bonus already declared.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





Related

This article is closed for comments.
Please Email the Editor