Among the various methods of bonus payments are Simple and Compound Re visionary bonus.
Simple re visionary bonus: Bonus is declared as x% of Sum Assured or face value of the insurance contract. Alternatively, bonus may be declared as x% of premium paid.
Example: SRB of 7% of SA of $ 1000/- would amount to $ 70/- of bonus
Compound re visionary bonus: Here bonus is declared as x% of bonus declared in the preceding policy year.
Example: Bonus declared this year is $70/-. The CRB is 10% of the bonus declared in the preceding year. Then the CRB is calculated as $77/- which is (70 * 1.10 = 77). $ 77/- will be the bonus declared in the succeeding year. In this manner, the CRB is calculated for each succeeding year.
There are some terms and conditions that must be in force for payment of bonus:
Simple re visionary bonus: Bonus is declared as x% of Sum Assured or face value of the insurance contract. Alternatively, bonus may be declared as x% of premium paid.
Example: SRB of 7% of SA of $ 1000/- would amount to $ 70/- of bonus
Compound re visionary bonus: Here bonus is declared as x% of bonus declared in the preceding policy year.
Example: Bonus declared this year is $70/-. The CRB is 10% of the bonus declared in the preceding year. Then the CRB is calculated as $77/- which is (70 * 1.10 = 77). $ 77/- will be the bonus declared in the succeeding year. In this manner, the CRB is calculated for each succeeding year.
There are some terms and conditions that must be in force for payment of bonus:
- There must be a 'with profits' policy
- A minimum number of years after the policy has been in force.
- Vested bonus are payable along with the sum assured that are payable on death or maturity.
- There is no guarantee by the insurer that the future bonus rates will be the same as the current declared rates
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