Insurance providers offer the following types of bonuses in life insurance:
The insurance company declares the simple reversionary bonus at the end of each financial year. But these bonuses are paid out only at maturity or death claims. A percentage of the sum assured is added as a bonus every year, and the accumulated sum is paid at the mentioned time.
Example: If you purchase a policy of a sum assured of ₹5 lakh with a simple reversionary bonus at the rate of 3% of the sum assured, you are eligible to receive a bonus of ₹15,000 each year.
This bonus type in insurance is similar to a simple reversionary bonus with one significant difference. The percentage of the bonus is not only applied to the sum assured but also to the previously accrued bonuses. This bonus is also paid on maturity or death claims.
Example: The calculation of bonus on a policy with a sum assured of ₹5 lakh with compound reversionary bonus @3% will be:
Amount on which bonus is calculated
(₹5,00,000 + ₹15,000)
Unlike the above two bonus types in insurance, a cash bonus is not accrued annually and is paid as a part of maturity or death benefits. Instead, it is declared and paid to the policyholder in the form of cash at the end of the financial year.
Insurance companies declare bonuses at the end of the financial year. However, the interim bonus is payable in case of policy maturity or death of the policyholder between the two successive bonus declarations. The interim bonus is typically calculated for the remaining days from the last bonus declaration date.
Example: If your policy matures on September 30, 2023, and the last bonus declared was on March 31, 2023, the remaining six months' bonus from April 1, 2023, to August 31, 2023, is paid as an interim bonus.
Terminal bonus is like a reward given by the insurance provider to the policyholder for continuing with the policy until maturity. It is a one-time benefit shared only at the policy maturity; hence, if the policyholder surrenders the policy, they will not be eligible for this benefit.