Vested Bonus

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Definition:

A vested bonus is a bonus issued by the insurance company after realising its assets and liabilities.

Description:

Insurance companies release some bonuses to the policyholder on the policy's maturity or on the insured's death. A vested bonus implies that, as of the date of determination, any bonus is not yet paid to the insured, and all the conditions are fulfilled.

The bonus is added to the final maturity amount and given to the policyholder at the end of the policy term.

In case the policyholder surrenders the policy before the maturity period, the vested bonus is added to the reduced paid-up value of the policy.

The total vested bonus is the sum of the simple reversionary bonus and the final additional bonus earned during the policy term. The vested bonus is declared per thousand sums assured for each financial year.

A vested bonus does not apply to all insurance policies but depends on the type of the policy. The insurance company declares the bonus based on their experience under "with-profit" policies.

Example:

Piyush owned a participating savings plan with the BDE Life Insurance Company Limited. He was confirmed by the insured that after investing Rs.50,000 annual premium for 15 years, Piyush will receive Rs.1 crore guaranteed1 benefit on maturity. The company also confirmed that Piyush will receive Rs.2 lakhs as a vested bonus under the policy.