6 smart things to know about bonus in a life insurance policy

1. A bonus is declared out of the valuation surplus of a life insurance fund, that is, the excess amount left in the fund after the insurer’s requirements have been met.

2. Only ‘participating’ or ‘with profit’ policy holders are eligible for the bonus declared. The bonus varies across plans.

3. A simple revisionary bonus is declared and added to the sum assured of the insured.

4. A compounded revisionary bonus is calculated as a percentage of the sum assured including any past bonuses declared.

5. Terminal bonus is paid once in the life of the policy, when the policy has been in force for a long time.

6. Interim bonus is paid to compensate for policies that were in force at the time the valuation was made but became claims before the bonus was declared and paid.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)