What Is The Meaning Of Bonus In Life Insurance
Updated On Feb 06, 2023
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A life insurance plan offers financial protection to the beneficiaries of the policyholder in case the latter succumbs to an unfortunate death. Offering several benefits, you can also get additional benefits in the form of a bonus with your life insurance plan. In simple words, a bonus in life insurance is a benefit that is given over and above everything else. Moreover, there are different types of bonuses in life insurance. So, in the section below, let us understand the concept of bonuses in life insurance.
Types of Bonus in Life Insurance
There are different types of bonuses in life insurance that you can avail of such as the following:
- Simple Reversionary Bonus: This type of bonus is given every year to the policyholder by most life insurance companies. The simple reversionary bonus is calculated on the basis of the sum assured.
- Compound Reversionary Bonus: This refers to the bonus that gets compounded on an annual basis. For instance, the bonus earned in the previous year is added to next year’s bonus and sum assured. bonus received at the end is called the Compound Reversionary Bonus. As the name implies, this is a type of reversionary bonus and is paid out either as a maturity benefit or after the death of the policyholder.
- Interim Bonus: Most often, the bonus is fixed by the insurer, however sometimes, the insurer pays interim benefits during the policy term. This is called the interim bonus.
- Cash Bonus: As the name implies, a cash bonus is paid out as cash benefits to the policyholders. The cash bonus is calculated on the basis of the premium paid out by the policyholder.
- Terminal Bonus: A terminal bonus is only out when the policyholder meets with an unexpected death or when the policy matures. However, surrendered and paid-up life insurance policies are not included in the terminal bonus. Moreover, based on the performance of your life insurance policy, a terminal bonus will be given to you.
How is Life Insurance Bonus Calculated?
A bonus in life insurance is calculated on the basis of the sum assured, interest earned out of the previous bonus amount, rate of interest, and a few other factors. For example, for a policy term of 10 years and a sum assured of Rs. 1 lakhs, the simple reversionary bonus comes out to be around Rs. 50,000. However, it is important to note that a life insurance bonus is only given to participating life insurance plans.
Take Away
Thus, before investing in any life insurance plan, you must speak to your insurer about life insurance bonuses. This will help you in understanding the additional benefits that you are eligible to receive with your life insurance plan.
