When you receive an extra payment over and above your salary or income assured per month by your company, it is referred to as a bonus. Similarly life insurance companies also make bonus payments to their policyholders on a yearly basis beyond the sum assured that they are entitled to. This additional amount can be either paid out on policy maturity or upon the death of the insured.
The premiums paid by policyholders of a life insurance company become a part of its asset pool that is utilised for payment of claims in the future. A large portion of these funds is invested in debt instruments secured by the government while allocating little to equities.
The insurer’s claim experience and returns on investment together are responsible for profit, which it distributes as bonus payments at the end of the financial year. Any excess of assets after the company’s assets and liabilities are valued, may also generate an extra amount to be distributed as bonus. Here are a few types of bonuses paid out to insurers:
Bonus is either computed as a percentage of sum assured or as a certain amount per ₹1000 of sum assured. For example, if the bonus is ₹ 50 per ₹1000 for a policy with a sum assured of ₹ 1 lakh, the annual bonus will be ₹ 5000. For a policy term of 10 years, the simple reversionary bonus comes out to be ₹ 50,000. The bonus rate is dependent on several factors such as return on company assets, bonuses declared in the previous year, claims filed, expected interest rates in the future and several other estimates.
It is important to note that bonus is paid only to policyholders of a participating life insurance policy. This applies to traditional plans such as endowment or money back plans. However, even such policies may sometimes forego the bonus to offer guaranteed addition to the insured, disclosed clearly upon purchase. Read the policy documents carefully when buying a life insurance plan and confirm the benefits offered by the insurer including the bonus, if any.
iSelect+ plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the best life insurance policy in India which offers you the flexibility to choose coverage for your lifetime or a limited period along with the choice of death benefits and premium payment options.
You can also enhance your cover by opting for inbuilt coverage for accidental death, permanent disability and child support among others. So make the right choice in tune with your needs and provide your family the security of a better future by choosing the right insurance policy.
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