The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am 27 years old, and am working in a multinational company. I want to invest in an insurance plan; I would like to know what life insurance with or without profits means.
Most life insurance companies offer whole life policies and endowment policies with the option of “with profits”.
A “with profits” policy is one where the policy owner shares in the profits that the company makes and this is added to the benefit which is finally paid out to the policy holder. All else being equal, the premium payable for a “with profits” will be more than that of a “without profits” policy. In a “without profits” plan, the contracted amount is paid without any addition.
What do you mean by reversionary bonus in a life insurance policy?
This is a bonus that stands attached to the basic sum assured under a with-profit plan. Once declared, the reversionary bonus becomes guaranteed and is payable at the time of any claim under the policy.
I want to know the difference between simple, compound and super compound reversionary bonuses. Does this hold good only for traditional plans or is it applicable for unit-linked insurance policies as well?
Simple reversionary bonus is expressed as a percentage of the basic sum assured under the contract. Compound reversionary is expressed as a percentage of the basic sum assured plus any already attached bonuses. Super compound reversionary bonus is expressed in terms of two percentages: one applied to the basic sum assured and the other applied to the already attached bonuses. The second percentage is often higher than the first. These bonuses are applicable only for traditional plans and not for unit-linked insurance plans.
Readers are welcome to write in with their queries to firstname.lastname@example.org. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Bert Paterson, managing director and CEO, Aviva India.