All You Need to Know About Life Insurance Bonus

Life insurance is one of the most popular insurance products in the market. This is because it safeguards the financial needs of a policyholder's family after their unexpected demise. In this context, several insurance providers offer various add-ons or riders that enhance the overall benefits of an insurance plan. 

Further, there can be a number of bonus amounts on top of the benefits. Continue reading this guide to know the meaning and types of bonuses in a life insurance policy.

A bonus is an extra sum of money that an individual gets on top of the base amount. This concept also applies to bonuses in a life insurance policy. In the case of a life insurance policy, it is the sum that is accumulated on an annual basis. 

This bonus is payable when a policyholder dies or at the maturity of an insurance plan. This bonus is applicable over and above all advantages under a life insurance policy.

The premium that any policyholder pays becomes part of an insurance provider’s asset pool. The money from this asset pool is used while paying for insurance claims in the long run. The insurer invests a sizable portion of this fund in several government-backed debt instruments while a little potion is invested in equities. 

The claim experience of an insurance provider and ROI (Returns On Investment) generate the profit, which the insurers distribute in the form of a bonus at the end of a financial year. The bonus rate is evaluated by several factors, such as: 

• Returns on fundamental assets 
• Bonus level announced in the last year, and more

An insurance provider pays a bonus in the life insurance policy in the event of a policyholder's death or at the policy's maturity. For instance, if an insurance policy has a term of 30 years, a policyholder will receive the bonus after 30 years. Nevertheless, if a policyholder passes away after the 20th year, the insurance company will pay the bonus collected until the day of the demise of the nominee. 

Note: Only in the case of a cash bonus an insurance company provides the bonus amount every year rather than paying during the maturity date or the policyholder’s demise.

1. Reversionary bonus

2. Simple reversionary bonus

3. Compound reversionary bonus

4. Interim bonus

5. Terminal bonus

6. Cash bonus

To get the best bonus on their policy, applicants can consider following these tips to choose the best life insurance policy: 

Tip 1: Before applying for a life insurance policy, applicants must determine the coverage amount required to fulfil their financial objectives. Further, policyholders should opt for sufficient coverage to safeguard their family’s future after their demise.

Tip 2: Buy a life insurance policy from reputed companies with a constant claim settlement ratio of more than 95% for years. In this regard, applicants can visit the official website of IRDAI (Insurance Regulatory and Development Authority) to know the latest claim settlement ratio of various insurance companies in India. 

Tip 3: Purchasing a life insurance policy at a younger age comes at a considerably lower price than buying one at a later age. 

Tip 4: Opting for a comprehensive plan will help policyholders cover the costs in case of unexpected medical emergencies. Individuals can opt for critical illness coverage, accidental death coverage, permanent disability add-on, etc., as rider plans on their ongoing life insurance plans. 

These are the different types of life insurance bonuses, which can differ for every life insurance policy and provider. Hence, individuals must check the different bonuses applicable to their life insurance policy.