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What is a With-Profit Policy?
A with-profit (or "participating", "par") policy entitles the policyholder to share in the surplus of the insurer's participating fund through periodic bonuses over and above the guaranteed sum assured. A non-par (without-profit) policy pays only the guaranteed amount — no bonuses, no surprises, fully predictable.
Par vs Non-Par at a Glance
- Par: sum assured + accumulated bonuses; bonuses are non-guaranteed and depend on insurer's investment performance, mortality experience and expense control.
- Non-par: sum assured (or guaranteed annual payout in a non-par savings plan) only; returns fully locked at policy issuance, immune to interest-rate moves.
Bonus Types in a Par Policy
- Reversionary Bonus (RB) — declared annually, added to the policy and payable on maturity/death. Once declared, it becomes a guaranteed addition (cannot be reduced).
- Terminal Bonus (TB) — one-time, paid only on maturity, death or surrender in later policy years. Often the largest single component of total payout.
- Interim Bonus — pro-rata reversionary bonus for the period between last declaration and claim/maturity.
- Cash Bonus — paid annually in cash instead of accruing (rare in India).
Worked Example
20-year par endowment, sum assured Rs 10 lakh, annual premium Rs 50,000. Reversionary bonus declared at Rs 40 per Rs 1,000 SA = Rs 40,000/year. Over 20 years: Rs 8 lakh bonus + Rs 2 lakh terminal bonus + Rs 10 lakh SA = Rs 20 lakh maturity. IRR ~5.5%.
When to Choose Which
- Par: you accept variable returns for participation upside; long horizon (15+ years).
- Non-par savings: you want a fixed-rate guaranteed alternative to FDs with tax-free maturity (under Section 10(10D) limits).
IRDAI Caveat
Bonuses are not guaranteed. Past bonus rates are illustrative only. Read the "Customer Information Sheet" Section 7 for historical bonus declaration trends before purchase.
Educational only — not advice. ARN-314872.