Loyalty Addition/Guaranteed Addition

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Definition:

Loyalty additions are the additional payouts that the insurance companies offer to their customers for continuously paying premiums when they are due.

Description:

A customer earns rewards and discounts when the relationship between them and the service provider continues without interruptions.

In the similar manner, insurance companies provide loyalty additions to the customers as they do not surrender the policy before the maturity date.

It applies to insurance policies like ULIPs and endowment plans. Life insurance policies have long policy terms and not all customers continue to pay the premium for this time length.

This is why those who pay the premium whenever it is due, are rewarded with the loyalty additions paid by the insurance company. Loyalty additions are earned at the end of each policy till the end of the maturity or till the policyholder dies, whichever happens first. The percentage of the loyalty additions accrued will range from the factors like age of the life insured, premium payment term, and the number of lives insured.

The guaranteed loyalty addition is computed at the rate of per 1000 of sum assured for a policy term. Loyalty addition is applicable after the completion of 5 policy years. The exact calculation will depend on the terms and condition of the policy.

Example:

Prateek bought a Savings Plan with a single premium variant. The loyalty additions were offered from the end of the second policy year. The percentage of loyalty additions accrue from 1% to 12.6%. He bought the policy for sum assured Rs.8 lakhs and the guaranteed maturity benefit of Rs.23 lakhs. Out of these 23 lakhs, the insurance company had paid the loyalty addition of Rs.3.5 lakhs.