Loyalty Addition In Life Insurance - Meaning, Example And How It Works

Life insurance is a long-term financial product. Its benefits often extend up to 20 years or more, depending on the policy term you choose. Long-term benefits also mean that you may need to pay your premiums over the same duration, especially if you choose a regular premium plan.

However, not everyone can keep up with a long-term commitment like this. Many policyholders stop paying the premiums due on their policy after a few years. This results in the policy lapsing, and any benefit offered by the life cover ceases to exist.

But if you remain consistent with your premium payments, there are several advantages that you can enjoy. One such benefit is that your life cover will continue to remain in place. In addition to this, you can claim tax deductions year after year, provided you pay your premiums on time.

And there's also another lesser-known advantage of being consistent with your premium payments. We're talking about loyalty additions, of course. Not sure what they are? Let's find out all the details you need to know about loyalty additions.

What are loyalty additions?

Loyalty additions are additional payouts that some life insurance policies offer. As the name indicates, they are additions that accrue on policies if the policyholder continues to pay the premiums as and when they are due.

In simpler terms, these are additional rewards that the insurer gives out to the policyholder for not surrendering the plan, and for keeping it active throughout the policy term. They are paid out at the time of death of the life assured or maturity of the policy, as the case may be.

Loyalty additions: An example

Let's try and understand how loyalty additions work with the help of an example. Take the ABSLI Assured Savings Plan (UIN: 109N134V05) , for instance. This plan gives you the option to choose between a single premium variant or a limited premium variant.

• For single premium policies, loyalty additions accrue from the end of the second policy year.
• For limited premium policies, loyalty additions accrue after the end of the premium payment term.

The percentage at which the loyalty additions accrue ranges from 1.0% to 12.6%. And it depends on the following factors.

• The age of the life insured
• The premium payment term - whether single or limited
• The number of lives insured - whether single or joint

What kind of life insurance plans offer loyalty additions?

Broadly speaking, loyalty additions are typically offered by Unit Linked Insurance Plans (ULIPs) and endowment plans. However, keep in mind that not all ULIPs and endowment plans offer loyalty additions. So, it is always a good idea to study the benefits and features of an insurance policy before you purchase it. This way, you can rest assured that you know exactly what you're getting with your life cover.

Are loyalty additions taxable?

According to section 10(10D) of the Income Tax Act, 1961, the sum assured under a life insurance plan as well as any bonus and any other amount paid on account of the death of the insured or the maturity or surrender of the policy are tax-free in the hands of the receiver.

Since loyalty additions also fall under this category, they are not taxable at all.

WHY IT’S IMPORTANT TO PAY PREMIUM ON TIME

If you want to enjoy the loyalty additions that your insurance plan offers, there’s just one important thing you need to do - pay your premium on time. In fact, you can even pay your premium in advance. We have a blog that explains why this is important.

Get loyalty additions up to 12% -

and save for your future With the ABSLI Assured Savings Plan (UIN: 109N134V05) , you can enjoy the advantage of loyalty additions that boost your corpus year after year. And all you need to do to enjoy this benefit is pay your premiums on time. Simple, isn’t it? And there’s more too. This plan also offers other beneficial features like Joint Life Protection for you and your spouse, as well as riders to enhance the benefits.

Conclusion

All things considered, loyalty additions are benefits that are built into the policy in an effort to encourage policyholders to pay the premiums on time and to remain invested with the policy throughout the policy term. And since this is an incentive that guarantees to boost your corpus year on year, you would undoubtedly want to ensure that it remains unaffected, isn't it?