Bonus in insurance plans

Bonus in insurance plans

  • When a life insurance company makes a profit, it is supposed to distribute a part of that profit to its policyholders, in the form of bonus payments.
  • Not all life plans are eligible for bonus. Plans can either be participatory, thereby qualifying for bonus, or non-participatory, that do not qualify for bonus.
  • Bonus is different from guaranteed addition (GA). Bonus depends on the insurer’s profit while GA is an assured addition to the policy and is disclosed upfront.
  • Bonus depends on quantum of investment gains of the ‘with profit’ fund either as a certain amount per Rs 1,000 sum assured or as a percentage of the sum assured.
  • In most traditional life policies, bonus amount keeps getting added to the policy and keeps accumulating till the policy’s maturity. This is ‘reversionary’ bonus.
  • Terminal bonus is added on maturity of policy or on death. It is a onetime bonus that the insurer declares for policyholders who keep policy till maturity.

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