Understanding the Bonuses You Can Get in Life Insurance

When we talk about life insurance, there are so many terms associated with it. One of such terms is "bonus". But what exactly is a bonus in life insurance, and how does it work? Let us find out in this article.

What is a Bonus in Insurance?

A bonus in insurance refers to the additional amount of money that a policyholder receives along with their regular payout or upon policy maturity. This extra amount is essentially a reward that can be provided by the insurance company to the policyholder. All in all, it can significantly enhance the financial benefits of owning a life insurance policy.

Types of Bonus in Life Insurance

There are several types of bonuses that you can encounter in the world of life insurance. Every bonus in this world serves a different purpose and can have varying effects on the overall value of the policy. Let us get a closer look at some common types of bonuses:

Compound Reversionary Bonus

It is a regular bonus that is declared annually by the insurance company. It is the percentage of the sum assured and is added to the cash value. However, you will not get this bonus immediately but is provided when the policy matures or in the event of the policyholder’s demise.

Terminal Bonus

Also, known as a final bonus, is a one-time bonus that will be paid out when the policy matures or the insured passes away. However, it is not declared annually like the reversionary bonus and is determined based on the performance of the company’s investment and the duration of the policy.

Interim Bonus

It is the bonus that is declared during the policy term but before the end of the financial year. This type of bonus is not guaranteed and depends on the company’s financial performance.

Simple Reversionary Bonus

This bonus is calculated as a percentage of the sum assured and is added to the policy annually. This bonus can be paid out mostly at the time of policy maturity or upon the death of the policyholder.

Cash Bonus

A cash bonus is paid directly to the policyholder in cash instead of being added to the cash value. Also, you as a policyholder can choose to receive this bonus or reinvest it in the policy.

Benefits of the Bonuses

Bonuses in the life insurance policy can be very beneficial in all the later years of life. You can get an increased return which makes it more attractive. It provides an additional financial cushion for the policyholders and their beneficiaries which makes sure that they receive more than the basic sum assured. It gives you flexibility as well as protection against inflation.

Conclusion

Bonuses in life insurance can be a valuable addition to payouts that you will receive in the future. It enhances the overall financial benefits of the policyholder. But before purchasing any plan, understand all about the bonus in life insurance policies and the payment structure.