Personal Finance

Term of the week: Insurance Bonus

| Updated on February 24, 2019 Published on February 24, 2019

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

Terminal bonus is the benefit offered by insurers when the policy matures 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 given only in life policies, where there is an investment-insurance combo. It is declared as a percentage of sum assured.

The amount of 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 the sum assured (on death) or with the maturity amount at the end of the policy tenure.

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