What To Know About LIC Bonus Calculator?

How Much Bonus Will You Get? - LIC Bonus Calculator

In LIC, the simple reversionary bonus rates are used to declare bonuses rates. This implies that the bonus rates are not compounded. These bonus rates will be valid for Rs. 1000 Sum Assured for the plan in question for that year.

For instance, let us say that a new endowment plan has Rupees 45 on a sum assured of Rupees 1000 for a tenure of 21 years. So suppose the policy has a sum assured of Rupees 10,00,000. 

So, (45/100) x (10,00,000) = Rupees 45,000 will be the bonus for that year. 

All the bonuses for the years up to maturity will be added together at maturity to determine the simple reversionary portion of the maturity returns.

LIC Bonus Rates 2020-2021 (Declared in March 2020)

Does Your LIC Policy Qualify For Bonus?

The type of policy you have will determine if you are eligible for a bonus or not. Traditional insurance policies like endowment or money-back policies can be either participatory (or with profit), which allows for bonus eligibility, or non-participatory (without profit). Non-participatory policies are less expensive than those that are participatory. 

Some with-profit policy returns do not depend on bonuses. These policies include a guaranteed addition (GA), which is an additional benefit. The bonus is not known and is dependent on the insurer's profit. GA, however, is an added assurance to the policy. It is disclosed upfront to the policyholder when he/she buys the policy.

Declaration of Bonus

The experience of the with-profit fund leads the insurer to declare the bonus rates for the prior financial year- in arrears. The bonus and quantum of surplus largely depend on the investment income amount earned. At the same time, other factors like mortality and expenses are also crucial. When determining the bonus amount, it is important to consider the expected interest rate in the future.

What are Types of LIC Bonus?

1. Simple Reversionary Bonus 

   The bonus amount is added to traditional life insurance policies and continues to accumulate until the policy matures. This is what happens with a simple reversionary bonus. As shown above, Rupees 45,000 was the simple reversionary bonus. 

2. Compound Reversionary Bonus 

   If the bonus is paid on the sum assured and the attached bonus from the previous year, it will be a compound reversionary bonus. In both instances, the policyholder can only avail of the cumulative bonus on the policy maturity or death, which should be 'reversionary' by nature.

3. Terminal Bonus

   The terminal bonus, as the name implies, is only added upon the policyholder's death or policy maturity. The bonus is only available one time to policyholders who have continued the policy till its term. The bonus is not payable for policies that have been paid up or surrendered.

4. Interim Bonus

   Bonuses are announced at the end of each financial year. However, what happens if a policyholder dies or the plan matures before the end of the financial year? To avoid such circumstances, insurers offer interim bonuses to prevent policyholders from being put at a disadvantage. The bonus amount is paid to the policy on pro-rata for that very year. 

5. Loyalty Addition (LA) 

   This one-time payment is made to the legal heirs or policyholder after a specified period (either maturity or death). Going with the name, LIC does this to value its loyal policyholders. 

6. Guaranteed Addition (GA)

   Only a few LIC plans offer guaranteed bonuses. The company is liable to pay a fixed bonus for the agreed tenure. This is often called a Guaranteed Additions.

7. Final Additional Bonus (FAB)

   FAB is almost the same as loyalty addition. The only difference is that it is usually paid to policies with a term of more than 15 years. The FAB calculation is also identical to that of LA. Long-term policies will typically have a higher FAB.

Salient Features of Bonus

Following features of a policy bonus make the bonus more attractive:

• The bonus in a participating policy is subject to the insurer's financial status for that year. The insurer holds the right to declare the bonus for that year or otherwise.
• The amount of profit an insurer makes can affect the quantum of bonuses every year.
• For each policy year, the bonuses are announced on an annual basis. However, the policy must be in effect at the time of the bonus declaration. Meaning, the policyholder has paid all due premiums.
• Once a bonus is announced and allotted by an insurer, it becomes a component of the policy. The insurance company will pay it upon maturity or at a specified time according to the policy rules.
• The term of the policy will determine the amount of bonus that can be added to a policy. A whole life insurance plan is usually entitled to a greater bonus amount.
• A policy that has paid-up value will still receive the annual bonus but no additional bonus.
• A policyholder cannot cash out the bonuses that are part of his/her policy benefits without terminating them.
• Only death, maturity, or surrender of the policy will be eligible for bonuses.

A bonus is an additional amount that accumulates to an insurance policy each year. It will be paid to the policyholder upon maturity or in case of his/her death. A policyholder can use the extra sum to achieve his/her long or short-term goal. 

Final Word

LIC usually declares bonuses every year (subject to surplus), making its policyholders happy. If you have a participating LIC policy, use the LIC bonus calculator to calculate your bonus.