Here is an in-depth article on the advantage and bonus components in the LIC plans, along with an elaborate explanation of how the bonuses are calculated.
Understanding LIC Policy Benefits | Insurance Articles
Life Insurance Corporation of India (LIC) provides its customers with numerous life insurance products that cater to different financial needs and objectives, whether it is protection, savings, pension planning, and/or creation of wealth. The basic advantage in all types of LIC plans will be the death benefit that pays the insured nominee a lumpsum in the eventuality of the death of the insured person. Subsequent to the above, all other advantages will be subject to the plan type that an insured selects.
Kinds of Benefits
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Death Benefit: The first and most crucial benefit is the payment made to the nominee after the demise of the policyholder. This benefit is usually the face value plus any bonuses earned.
Maturity Benefit: When the policyholder is alive at the end of the term of the policy, a maturity benefit has to be paid. This includes the sum assured as well as all the bonuses that are declared during the term.
Riders: Riders are permitted under LIC policies, which include accidental death benefit, critical illness, and waiver of premium. These are additional benefits that involve a nominal premium.
Tax Benefits: The premiums paid towards LIC policies are entitled to tax deductions under Section 80C of the Income Tax Act. Also, the maturity or death benefits are tax-free under Section 10(10D).
Kinds of Bonuses in LIC Policies
As mentioned above
LIC provides various bonuses, mainly in participating policies, that is, with-profit policies. The bonuses are declared on an annual basis by LIC based on the profits of the company and paid to the policyholders' accounts.
1. Simple Reversionary Bonus
This is the most popular form of a bonus. This is stated every year and is included in the policy. The bonus ispaid either on maturity or on death. The bonus does not compound on a yearly basis; rather, it is a percentage of theCover Sum, as stated on an annual basis for the term of the policy.
2. Final Additional Bonus
Also known as “Loyalty Addition Bonus,” it is an addition that is declared at the end of every term in policies that cover a longer period. It is not an annual addition but paid in lump sum to reward the customer for his or her loyalty to LIC.
3. Guaranteed Additions
Some schemes also provide guaranteed additions, also known as fixed bonuses, regardless of the profits earned by the company. This type of bonus can be found in endowment as well as money-back policies.
4. Interim Bonus
This is a bonus that is declared once for policies that are nearing maturity or are exceptional cases. It is not a common feature but occurs when declared.
How are bonuses calculated?
The bonuses paid on LIC policies depend on the sum assured and the bonus rate declared by LIC every year. The calculation is quite easy and can be carried out by using the following formula:
Bonus Amount=(Sum Assured1000)×Bonus Rate per 1000
\text{Bonus Amount} = \left(\frac{\text{Sum Assured}}{1000}\right
Suppose the Sum Assured is ₹5,00,000 and the rate of Bonus for the year is ₹45 per ₹1,000. Then the Bonus for the year will be:
*5,00,000/1000*×45=500×45=
This is an additional incentive for every year covered under the policy and is added to the policy account. At maturity and upon death, the total number of bonuses paid over the period of the insurance is paid in addition to the amount insured.
Calculation Example
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In case you have a LIC policy that has a sum assured of ₹10,00,000 with a policy term of 20 years and a bonus rate of ₹45 per ₹1,000 for each year, then the annual bonus would be:
(10,00,000/1000) × 45 = 1000 × 45 = ₹45,000 per year\left(10,
In over 20 years, the total simple reversionary bonus would be: Assessorial Value = ₹9,00, Now, if an additional bonus of ₹1,00,000 is also announced, the total bonus would be ₹10,00,000. At the time of maturity, the policyholder would get: \text{Sum Assured}+\text{Total Bonus}=10,00,000+10,00,000=\₨20,00 Participating vs. Participating Policy It is important to distinguish between participation and non-participation policies in respect of bonuses. Participating Policies Bonuses : These schemes contribute towards the profits of LIC and receive bonuses (Simple Reversionary, Final Additional, etc.) depending on the performance of the company. Premiums: Higher premiums compared to non-participating policies. Flexibility: Policyholders get to enjoy positive financial performances, so such plans are ideal for those in pursuit of better gains. Non-Particip Bonuses: These policies do not share in any profits and earn no bonuses. The gains are fixed as at the date of purchase. Premiums: Lower premium rates compared to other policies. Predictability: The benefits are assured and are not tied to the financial performance of the company, which makes these plans ideal for individuals who want predictable benefits. Checking Your Bonus Status
There are times when you It also offers an internet portal through which policyholders can access information about their bonus status, premium due dates, and policies. You can access your bonus declared every year and the total bonus through the LIC customer portal using your policy number. Tax Aspects of Bonuses Additionally, the bonuses paid on an LIC policy are tax-exempt under section 10(10D) of the Income Tax Act, if the policy satisfies a condition, which is that the premium paid does not exceed 10% of the sum assured for policies effective from April 1, 2012. Conclusion LIC policies provide various facilities and bonuses, which make them a favorite among people to acquire financial security as well as wealth. Knowing various types of bonuses along with their calculations will help readers make enhanced choices for earning increased bonuses from their policies. Whether you are purchasing a participating insurance policy or a non-participating insurance policy from LIC, the company’s sound performance and customer-focused strategies will ensure that valuable bonuses are obtained.
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