Life insurance with a traditional plan structure offers only life coverage. A savings-cum-life insurance plan is an insurance policy which provides the policyholder with dual benefits of insurance coverage and savings. Like the term insurance with return of premium, a savings plan will also need you to pay a premium amount for the guaranteed returns or the regular income you can get from this life insurance with returns plan. It is also plausible to call this plan the smart life insurance plan, as you get the benefit of insurance coverage and the benefit of saving in a systematic and disciplined manner. These plans can help you achieve your short-term as well as long-term goals efficiently and seamlessly.
When you purchase a savings-based life insurance policy, you can choose from whole life insurance plans, money-back plans and endowment plans. While a whole life insurance plan will cover you for a lifetime, the other plans can ensure that you receive either maturity benefits or death benefits in the form of instalments or lump sum. In the case of endowment plans, the insurance company also provides a bonus along with the maturity or death benefits to the insured.
The different types of insurance bonuses you can get through a savings plan:
- Cash bonus:
The cash bonus accumulated in a year will be paid to the policyholder in cash form at the end of a financial year. You can get this bonus every year rather than at maturity. If you wish to get a decent cash bonus from a savings insurance plan, you can consider the Tata AIA Value Income Plan.
- Interim bonus:
The insurer will declare the interim bonus at the end of the financial years. If the policyholder dies or the policy reaches maturity in between the bonus declaration dates, the policyholder gets the interim bonus.
- Terminal bonus:
The terminal bonus or ‘final bonus’ is declared and is added only for the policies that have reached maturity. It is a bonus offered to the policyholders for holding the policy in effect until its maturity date. Consequently, any policyholder who has stopped their plan or has collected the paid-up value will not get this benefit.
- Reversionary bonus:
Profits allocated to the participating policies will be paid as a reversionary bonus. A reversionary bonus increases the sum assured paid to the policyholder or nominee. The insurer will generally declare this bonus at the end of a financial year, and they are payable at the time of a claim. A reversionary bonus is of two types:
- Simple reversionary: The insurer will calculate the simple reversionary bonus as the percentage of the sum assured promised from the plan. For example, if the simple reversionary bonus rate is ₹50 per thousand of the coverage amount, and if the coverage amount offered is ₹10 lakhs, then the bonus can be calculated as:
Bonus = 50 * (10,00,000/1000) = ₹50,000
- Compound reversionary: The compound reversionary bonus is calculated as a percentage rate, but it applies to the sum assured and all the accumulated bonuses that were previously available in the policy. With this type, the bonus from every year will keep getting added to the sum assured and the coming year’s bonus is calculated on the new total amount. The bonuses from this type of benefit will keep increasing with time because of the compounding effect.
Thus, when you purchase a savings insurance plan, the premiums you pay towards the plan are invested in different government-backed securities and equities by the insurance company. There are different types of bonuses from insurance policies, like cash bonus, interim bonus, reversionary bonus and terminal bonus. Knowing the payout and benefits that you derive from any financial instrument, especially your investment avenues, helps you make the most out of it. So, what are you waiting for? Invest in a savings plan today and avail all the attractive bonuses and a guaranteed payout.