Quantum of bonus may vary depending on insurer's profit

I got bonus on my life insurance policy for five years, but last year I did not get any bonus. Why is this? Should the company let me know if it is not paying bonus in any year? 
- Mahesh Kumbla

From the information shared by you, I am assuming that your life insurance policy is a participating policy and eligible for cash bonus. Before I come to a conclusion, let me explain the concept of bonus. In participating policies, insurers invest a portion of the premiums paid in the with-profit-fund. The insurer then distributes profits to participating policyholders based on the company's (or fund's) profitability. 

There are two types of annual bonus – reversionary and cash bonus. In reversionary bonus, the yearly bonus if declared by the insurer keeps getting accrued to the policy till the policy's maturity and paid upon maturity or death of the policyholder. For example, for a term of 20 years, the accrued annual bonus will be paid only after 20 years. 

However, if the policyholder dies after the 8th year, the insurer will pay the bonus accumulated until that day to the nominee. On the other hand, cash bonus is given to the policyholder on a yearly basis and it is computed as a percentage of the yearly premium. For example, if the sum assured is Rs 5 lakh, the cash bonus rate is 4% and the annual premium is Rs 50,000, then the bonus paid to the policyholder will be Rs 2,000 (4% of 50,000). In some participating plans, a cash bonus is expressed as a percentage of sum assured. 

In your case, the insurer had paid the bonus for the past five years. As mentioned by you, the annual bonus was not paid last year. This may happen if due premiums are not paid or due to unfavourable earnings on the with-profits-fund. However, this does not indicate that you will not receive any bonus in future. If the earnings are favourable, the insurer will pay annual bonus provided all due premiums are paid till date. The quantum of bonus may vary each year depending on how much profit is generated by the insurer. You may access the website of the concerned insurer and check the rate of bonus declared each financial year. For further information and clarity, we advise you to consult your insurer to get more clarification and reason for not paying the bonus.

Anuj Mathur, MD and CEO, Canara HSBC Oriental Bank of Commerce Life Insurance

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