Nowadays everyone is taking a life insurance policy to plan their future. But do you know that the companies providing these policies not only provide insurance but also provide additional benefits. Actually, we are talking about insurance policy bonuses. This is the bonus that the company gives you on the basis of your premium.
By taking a life insurance policy, you not only get your insurance amount but also share in the company’s profits. This bonus is decided on the amount deposited by you and is received on expiry of the policy or at the time of claim. Let us tell you what is insurance policy bonus, on which policies it is available and how much benefit it can give.
What is insurance policy bonus?
First of all, know that insurance policy bonus means that when you pay your premium to the insurance company, it invests your money in the market. Sometimes in bonds, sometimes in shares, sometimes in other safe investments. If the company gets good returns, that is, it makes profit, then it returns some of its share to the policy holders in the form of bonus. Additionally, if the company receives fewer claims, meaning fewer people make claims on the policy, their expenses also remain lower, so the remaining money also becomes a bonus. This bonus is declared every year, but is given at the time of claim when the policy matures or if something untoward happens.
Let us tell you that this bonus is not guaranteed. It also depends on the fact that it will be available only if the financial performance of the company is good. If the market is down or there are high claims, the bonus may be less or even zero. Still, most big companies keep it an attractive feature to keep customers happy.
On which policies is this bonus available?
There are two main types of policies – participating and non-participating. Only those who take participating policies get the benefit of bonus. In this you become a partner in the company’s profits, meaning you will get the benefit of profit sharing. Such as endowment plans, money back plans, whole life policies or some version of unit linked plans. If you just want cheap coverage then the term is fine, but if you want bonus along with savings then you can choose participating.
Insurance companies offer four types of bonuses, each with its own benefits. The first is the simple reversionary bonus. This is added to your sum assured every year, but no further bonus is available on it. Meaning it is like simple interest. This amount is available on expiry of the policy or on claim.
After this, the second type of bonus is – Compound Reversionary Bonus. In this, every year’s bonus is added to the basic amount, and the next year’s bonus is calculated on the increased amount. Like compound interest, which increases the money in the long run.
The third is cash bonus. This is available in cash annually, but your policy amount does not increase. After this the fourth is terminal bonus. This is available to those who run the policy for a long time.
What benefits do you get?
Bonus increases your insurance coverage. Suppose you have taken a policy of Rs 5 lakh, if the bonus becomes Rs 6 lakh then you will get more on claim. Extra cash is available on maturity, which can be useful for retirement or child’s marriage. This also becomes a kind of backup fund. The most important thing is that the bonus rate can change every year. Life insurance bonus helps in increasing your claim amount and doubles the safety of the family. Therefore, while taking the policy, understand well whether you will get bonus in your policy or not.
