Investment plans, both endowment, and money-back programs, are often called savings plans as they offer a guaranteed maturity amount after the insurance term is over. Usually, if calculated the growth over the insurance term, one may find it less than a ULIP (Unit Linked Insurance Plan) or Mutual Funds, but for some, these are the ideal risk-free investments. They are safe with no investment risk involved. You get the maturity amount at a fixed time. Insurance companies often talk of details like guaranteed additions, loyalty additions, and bonuses when talking about. Get the best guide to investment linked plans in Singapore. But what are these, and how are they calculated?
These additions are the profits earned by the insurance company during the year that are shared with the policyholders.
Insurance companies guarantee a bonus or this profit share every year. This is a guaranteed percentage of the sum assured that the insurance company has to pay irrespective of the company’s performance. The guaranteed additions accumulate over the insurance term and are paid at the end, on maturity, or along with death benefit as the case may be.
Other than the guaranteed additions, insurance companies declare addition to the sum assured after remaining invested for a given minimum period. The percentage varies as per the performance of the insurance company. This is known as loyalty addition. It is paid for the number of years the premium has been paid. Often, insurance companies guarantee that they will pay the loyalty additions.
The insurance company declares a bonus at the end of the financial year. Just like other addictions, it is calculated on the sum assured. The percent bonus claimed depends upon the performance of the insurance company in the past financial year. Most insurance companies condition that the bonus will be paid after the first two years or three years of the insurance. Unlike other additions explained earlier, the bonus may not be declared every year. This is an entirely performance-based addition.
Any additions accumulated over some time are given on the policy’s maturity or as a part of the death benefit to the beneficiary of the insurance policy. Bonuses and additions add value to the investment plan and increase the guaranteed maturity amount or the sum assured. An important thing to know is that additions accumulate in the policy and do not compound over time.