5 most important Bonus Options (Insurance)

5 most important Bonus Options

1. Cash Bonus :

Under this plan, the bonus when declared is paid to the assured in cash and the original sum assured alone is payable at claim. However, the cash bonus can be converted into other options of bonus.

2. Reversionary Bonus :

The bonus is allotted as a uniform percentage addition to the sum assured or sum assured plus existing bonus addition and is payable along with the sum assured according to the terms of the policy.

The former case is known as ‘Simple Reversionary Bonus’ and the latter is known as ‘Compound Reversionary Bonus’. The former is simple popular and flexible as every time a bonus is distributed some addition is made to the policy amount.

The compound reversionary becomes more equitable but is hard to calculate. So, the simple reversionary bonus is practically used today.

3. Reduction in Premium Bonus :

When the bonus is not added to the assured sum but is utilised for permanent reduction in the future premium payable, it is called ‘Reduction in Premium Bonus’.

As soon as the yearly bonus will be equal to the yearly premiums payable, the policy becomes paid up and no future premiums are required. After this point, the additional increase in bonus may be added to the policy amount.

4. Accumulation at Interest Bonus :

The bonus on the policy is kept in deposit with the insurer. The insurer gives a fixed rate of interest on the deposited amount and the insured at any time can withdraw the accumulated bonus or can use it for payment of future premiums.

5. Endowment Option :

Under this option, the bonus is accumulated with a certain rate of interest and when the accumulated value of the policy becomes equal to the policy amount, the policy amount is paid in full before maturity.

The accumulated value of the policy will increase with the amount of bonus reserves and interest thereon. Thus, before maturity at any time the accumulated value of the policy will be equal to the policy amount.

In India, the Corporation declares simple reversionary bonus at the interval of one year. The bonus can also be used for payment of future premiums.