Page 69 - IC23 life insurance application

WITH PROFIT AND WITHOUT PROFIT POLICIES:

The profit requirement in an insurance policy is a modern concept in order to make

life insurance more attractive. Only if the sum assured as it is is to be returned after

years of paying the premium, the life assured feels cheated. He therefore, wants

that his premium amount should also earn some profit and the final sum assured

should be much more.

The insurance companies charge an extra amount from the policyholder for allowing

such benefit. This is called bonus loading, which can be quite substantial. Thus

without profit policies are much cheaper compared to with profit policies. The bonus

can be paid along with the claim only, though it is declared every year. It is, then

called reversionary bonus. Some insurance companies may decide to pay bonus in

cash every year. In such a case, the amount payable has to be necessarily much

less than in case of a reversionary bonus.

Longer the term, higher is the bonus earned. LIC has divided its bonus rates on the

basis of the length of the term of the plan. Policies with a term of 26 years or more

earn bonus at `a higher rates than the policies of term between 21 years and 26

years. The policies of less than 21 years earn at a still lower rate.

Long-term policies get a fixed additional bonus as an incentive and so also those

policies, which remain in force till maturity. This latter bonus is called loyalty

addition.

In money back policies, a portion of the sum assured is paid several times during the

duration of policy. There is not much capital left to earn profit. Therefore, most of

these policies either do not earn any bonus or earn at lesser rate.

Copyright Dr Rakesh Agarwal Sashi Publications Private Limited

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