There is a piece of good news for the policyholders of HDFC Life insurance company, HDFC Life has announced bonus on the participating life insurance plans. Bonus is the amount that a policyholder gets if the insurer makes a profit called ‘surplus’ in insurance parlance. Generally, the bonus is payable on death, surrender or on the maturity of the policy, whichever occurs earlier.
During the policy term, the bonus keeps accruing and becomes assured once declared by the insurer. However, not all policyholder may be eligible to receive the benefit of a bonus. It is only the eligible ‘participating’ policyholders who get a share of the surplus generated in the participating fund and their benefit amount will increase with the declaration of bonuses every year.
In the Company’s Board meeting held in April 2021, HDFC Life had announced a bonus of Rs. 2180 crore for the 15.49 lakh eligible policyholders. As per the insurer, it exceeds the previous year’s bonus by 44 per cent.
Out of the total amount of Rs. 2180 crore, Rs. 1,438 crore will be payable to policies in this financial year, as a bonus on maturing policies or as cash bonuses. The remaining bonus amount would be payable in the future when policies exit on maturity or death or surrender.
Some HDFC Life insurance plans with Reversionary Bonus Plans are:
- HDFC Money Back Plan
- HDFC Children’s Plan
- HDFC Endowment Assurance
- HDFC Savings Assurance Plan
- HDFC Assurance Plan
You may check your policy document to see if you as a policyholder are eligible for the bonus announced. It will clearly mention that the policy participates in profit or is a non-participatory policy.
Unit-linked insurance plans are not eligible to get a bonus as they are market-linked plans and do not participate in the insurer’s profits. Endowment or money-back plans, can either be ‘participatory’ (or ‘with-profit’) plans, thereby qualifying for a bonus or ‘non-participatory (or ‘without-profit’) plans that do not qualify for the bonus.
There could be a reversionary bonus and in addition, a terminal bonus declared by insurers. Some plans may offer a cash bonus too. Most commonly used is the concept of a simple reversionary bonus in which the bonus amount keeps getting added (accrued) to the policy and keeps accumulating till the policy’s maturity.
The returns in some ‘with-profit’ policies may not entirely depend on bonuses. Instead, in such policies, there is a ‘guaranteed addition’ (GA) to the policy. Bonus is unknown and depends on the insurer’s profit while GA is an assured addition to the policy and is disclosed to the policyholder upfront while buying the policy. The bonus rates for the participating business as required to be declared in the future is based on the interest expected to be earned as per the valuation assumptions.
Bonus is declared either as a certain amount per Rs 1,000 sum assured or as a percentage of the sum assured. For example, the bonus may be Rs 40 for every Rs 1,000 of the sum assured. So, for a policy with the sum assured of Rs 1 lakh, the bonus amount will be Rs 4,000. In the above example, if the term of the policy is ten years, the total bonus accumulated on maturity will be Rs 40,000.