Bonuses in Endowment Policies

If you hold a traditional endowment policy — or are thinking of buying one — the word "bonus" will appear frequently in your policy document and benefit illustration. Bonuses are not a gift or a lucky add-on; they are the primary mechanism through which your policy generates returns above the guaranteed minimum. Understanding how they work helps you read a benefit illustration accurately and compare products intelligently.

Simple Reversionary Bonus

The most common bonus type in Indian endowment plans is the simple reversionary bonus (SRB). Declared annually as an amount per ₹1,000 of sum assured, it is added to your policy''s accrued benefit. If your sum assured is ₹5 lakh and the insurer declares a bonus of ₹45 per ₹1,000, your bonus addition that year is ₹22,500. This amount is now guaranteed — neither the insurer nor any market event can reduce it. Over a 20-year policy, the cumulative simple reversionary bonus could add up to 40–90% of the original sum assured, depending on declared rates.

Compound Reversionary Bonus

Under a compound reversionary bonus (CRB) structure, the bonus is expressed as a percentage of the sum assured plus previously declared bonuses. Because the base grows each year, the absolute rupee addition increases annually even if the percentage rate stays constant. Over long tenures, CRB structures deliver meaningfully higher returns than SRB for the same declared rate — a distinction that is easy to miss when comparing plan illustrations superficially.

Interim Bonus

If a policy matures or the policyholder dies partway through a policy year — before the annual bonus declaration — the insurer typically pays an interim bonus to compensate for the portion of the year elapsed. The rate is usually slightly lower than the previous full-year bonus. This ensures policyholders are not disadvantaged by the timing of their claim.

Terminal Bonus (Final Additional Bonus)

Declared only at the time of maturity or death claim, the terminal bonus rewards long-term policyholders. It is not guaranteed at inception and can vary significantly between policies and years. Insurers use terminal bonuses to distribute surplus that has built up in the participating fund over time. A policy held for 30 years may receive a terminal bonus equal to 20–40% of total accrued reversionary bonuses; one surrendered at year 10 receives nothing. This asymmetry is a strong argument for holding endowment policies to maturity.

How to Read a Benefit Illustration

IRDAI requires insurers to provide benefit illustrations showing projected maturity values at two assumed investment return scenarios. Guaranteed values — sum assured plus declared reversionary bonuses accumulated to date — are the floor. Non-guaranteed projections include assumed future bonuses and terminal bonus estimates. When comparing plans, focus on the guaranteed maturity value, not the optimistic projection, for an apples-to-apples comparison.

LIC vs Private Insurer Bonus Rates

LIC has a long, public record of bonus declarations, which provides genuine predictability. Private insurers'' bonus records are shorter and less publicly scrutinised. Some private plans use compound bonus structures that can outperform LIC''s simple bonus plans on paper over 20+ years — but the track record is shorter and the guarantee weaker. Neither is universally better; evaluate the specific plan and its guaranteed floor.

Conclusion

Bonuses transform a modest guaranteed sum assured into a meaningful maturity corpus over 15–25 years — but only if you hold the policy to maturity and understand whether you are in a simple or compound bonus structure. The next time you are shown a benefit illustration, ask your insurer to separate the guaranteed and non-guaranteed columns. For a clear comparison of endowment plans from multiple insurers and their historical bonus performance, use TruePolicy to make the decision with full information.