Types of bonuses in Life Insurance

Who doesn’t like getting something extra?

Insurance companies also offer you something beyond the guaranteed benefits promised to you in your policy. This extra amount is called bonus.

So a bonus is the extra amount of money that gets added on to your policy year on year and is paid to you at the time of payout of the benefit, whether its maturity claim or the death claim.

There are primarily 4 kinds of bonuses that are added to your sum assured.

  1. Simple revisionary bonus: this bonus is calculated on the basis of simple interest. For example, if you have plan for the term of 10 years, which has sum assured of Rs 10 Lakhs and company has declared Simple revisionary bonus of 2.5%, the bonus declared is 25000 which will be accumulated and paid at the time of maturity or death claim.

  2. Compound revisionary bonus: this bonus is calculated on the basis of compounded interest. Every year’s bonus is added to the sum assured and the next year’s bonus is calculated on the increased amount.

  3. Terminal Bonus: this bonus is paid at the time of maturity to the customers who complete the term of the policy by paying all the due premiums as a reward for their loyalty towards the insurance company. Terminal bonuses are not guaranteed and depend on the company’s performance.

The bonuses which are declared on a particular policy are clearly mentioned in the product brochure. You should always confirm the benefits, which are the features of the plan, with your agent or the sales executive. It is very important for you to understand what all is being offered to you.

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