When you buy life insurance, you not only secure financial protection for your loved ones but may also earn additional rewards in the form of bonuses. These bonuses enhance the value of the policy and act as an incentive for staying invested. Understanding the types of bonuses helps policyholders make informed choices when they buy life insurance and highlights the long-term benefits of life insurance.
Understanding the Various Types of Bonuses in Life Insurance#
In participating life insurance plans, policyholders are eligible to receive a share of the insurer’s profits in the form of bonuses. These bonuses are usually not guaranteed. But once declared, they become a part of the policy benefits. For anyone looking to buy life insurance, it is essential to understand these bonus types, as they directly affect the maturity value or death benefit of the policy.
Below are the most common types of bonuses offered under life insurance plans.
1. Revisionary Bonus#
A revisionary bonus is the most common form of bonus provided by insurers. Once declared, it is added to the policy and becomes payable either on maturity or in case of the policyholder’s demise. There are two main types:
- Simple Reversionary Bonus
This is calculated as a percentage of the sum assured and is declared annually. Once attached to the policy, it cannot be withdrawn. For example, if you hold a policy with a sum assured of ₹5,00,000 and the insurer declares a simple reversionary bonus of 3% for that year, ₹15,000 gets added to your policy benefits.
- Compound Reversionary Bonus
Here, the bonus is calculated not just on the original sum assured but also on the accumulated bonuses from previous years. This allows the policy benefits to grow at a faster pace, much like compounding in investments. For individuals planning to buy life insurance for long-term growth, this bonus type offers significant value.
2. Cash Bonus#
Unlike reversionary bonuses, which are added to the policy, a cash bonus is paid out immediately to the policyholder. It is declared at the end of the financial year and given as a direct cash payment. While it does not enhance the maturity value of life insurance plans, it provides immediate liquidity. Policyholders can use this cash for personal needs, reinvestment, or other financial goals. This can help you enjoy one of the major practical benefits of life insurance: providing financial support when you need it most.
3. Interim Bonus#
An interim bonus is applicable when a policy matures or a claim arises before the insurer declares its annual bonus. Since bonuses are generally announced at the end of the financial year, an interim bonus ensures that policyholders who exit mid-year are not left without any additional benefit. This is particularly helpful for individuals whose policies mature before the year-end. It reflects the insurer’s effort to keep all policyholders fairly rewarded under life insurance plans.
4. Terminal Bonus#
The terminal bonus, also called a persistency bonus, is a one-time reward paid to policyholders who continue with their plan until maturity. It is not payable if the policy is surrendered mid-term.
This bonus is meant to reward loyalty and long-term commitment. For someone who chooses to buy life insurance as a disciplined financial product, a terminal bonus enhances the final payout to a considerable degree. It often acts as a financial boost at the end of the policy and helps you contribute toward your goals.
Why Bonuses Add to the Benefits of Life Insurance#
Bonuses are an added advantage in participating life insurance plans. They encourage policyholders to stay invested and enjoy the multiple benefits of life insurance beyond just risk coverage. While bonuses are not guaranteed, their long-term impact can considerably increase the overall returns from your policy.
For instance:
- A simple reversionary bonus increases your guaranteed sum assured steadily.
- A compound reversionary bonus ensures exponential growth.
- A cash bonus provides short-term liquidity.
- Interim and terminal bonuses reward loyalty and commitment.
Understanding these options helps individuals make smarter financial decisions when they buy life insurance, so that they can ensure both security and wealth accumulation.
To sum up, bonuses under life insurance plans provide an additional layer of financial advantage for policyholders. They act as a reward for staying invested and can boost the maturity or death benefits of a policy. For anyone planning to buy life insurance, knowing these details ensures you choose the right plan to protect your family while maximising long-term returns.
# Bonus rate may vary from time to time based on Company’s Investment Performance.
No VCCircle journalist was involved in the creation/production of this content.
