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Whole life insurance plans, money back, and endowment plans gives the insured a cut of their profits, in addition to the sum assured. These plans are thus called participatory or 'with profit' plans. In insurance parlance, the profits are termed bonuses. Bonuses are accrued to your account and are typically paid to the insured at the end of the policy term.


How does an insurer make a profit? Insurers are allowed to invest a portion of the premium collected for the above-mentioned plans. These investments are heavily regulated by the norms laid down by the insurance Regulatory & Development Authority of India (IRDA). Typically, a major portion of the corpus is invested in government-secured debt instruments, with an infinitesimal percentage invested in equity.


Therefore, bonuses given on such life insurance plans represent the returns on investing in those products. Bonus is calculated on the sum assured and is expressed in rupees per thousand.


The insured can avail of the sum assured plus bonus accrued throughout the term of the policy on maturity. If the insured is to die within the term of the policy, his/her nominee receives the sum assured plus bonus accrued till the time of death.

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