Difference Between Bonus and Loyalty Addition in LIC Policies.

Traditional policies like Jeevan Anand, Jeevan Labh and Jeevan Saral are plans which participate in profit earned by the LIC. The earned profits are shared by LIC in the form of Simple Reversionary Bonus (or simply bonus), final addition bonus (FAB) or terminal bonus and Loyalty addition (LA). LIC receives insurance premiums from its customers and invests it in various instruments such as government bonds, corporate bonds, shares and advances loans in the economy. The profit is calculated against total earning from above activities by deducting all expenditures, taxes and the final profit is shared among its policy holders in the form of Bonus or Loyalty Addition.

This article provides understanding of difference between simple reversionary bonus or simply called Bonus and Loyalty Addition (LA).

What is Simple Reversionary Bonus?

Simple Reversionary Bonus or Bonus is declared by LIC for each policy year during the policy term and keeps accumulating into policyholder's policy account and paid in full only at maturity or death claim. LIC declares Bonus per 1000 of sum assured per year. For the purpose of understanding, last 3 years bonus of LIC Jeevan Anand is given below along with calculation of accumulated bonus for a policy with a sum assured and term as 1,00,000 and 21 years respectively.

Year Sum Assured Bonus Rate (for per thousand of Sum Assured) Bonus Amount
2015 100000 49 4900
2016 100000 49 4900
2017 100000 49 4900

So, the above said policy has accumulated Rs. 14,700 as accrued bonus during said 3 years (2015-2017).

What is Loyalty Addition?

Loyalty Addition (LA) is profit shared by LIC among its policy holders in the form of onetime payment in case of maturity or death claim. It is declared at the rate of per 1000 of sum assured for a particular policy term every year and this rate is applicable to such policies which are coming to claim due to death of policy holder or completion of policy term i.e. maturity. In general, it is applicable only after completion of 5 policy years.

To understand loyalty addition, declared Loyalty Addition rate for Jeevan saral for financial year 2016-17 are given in the following table. It means that if a policy is getting matured or becoming a death claim, then Loyalty Addition will as per following rates.

Policy Term Loyalty Addition for per 1000 of Maturity Sum Assured
10 425
11 475
12 500
13 550
14 570
15 600
16 640

In the above table, if there is a jeevan saral policy with 16 year policy term and the policy is getting matured in financial year 2016-17, then Loyalty Addition will Rs. 640 for per 1000 of Maturity Sum Assured (MSA).

Now, suppose there is a policy with maturity sum assured of 1,00,000 and policy term as 16 years. So loyalty addition will be 100000 x 640/1000= 64,000.

If death of the policy holder happens in 10th policy year then applicable Loyalty Addition rate will be 425 and total loyalty addition will be 1,00,000 x 425/1000= 42,500.

Frequently Asked Questions

Q: Can a policy holder withdraw his/her bonus/loyalty addition before maturity?

A: No, these are scheduled to be paid at maturity or death.

Q: Accrued Bonus or Applicable Loyalty Addition is paid or not if a policy is surrendered?

A: Yes, but not in full, rather percentage of accumulated bonus (not 100%).

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