LIC Bonus Accumulation Calculator
Key Takeaway
Traditional endowment policies declare a simple (non-compounding) reversionary bonus each year. Understanding how this bonus accumulates is crucial to realizing why these policies typically yield only 4% to 6% returns.
Policy Details
Usually ranges between ₹35 to ₹50 depending on the plan.
Payable one-time at maturity (usually for terms >= 15 years).
Maturity Benefit Breakdown
Total Estimated Maturity Value
₹20,00,000
Note: Bonuses are not guaranteed and depend on the insurance company's future profits. The calculator assumes the current bonus rate remains constant throughout the policy term.
Maturity Value Composition
See how your final payout is constructed
What to do next
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Endowment Policy Bonus Mechanics
Traditional life insurance policies (like LIC) declare a Simple Reversionary Bonus annually per ₹1000 of Sum Assured. This bonus does NOT compound. A Final Additional Bonus (FAB) may also be paid at maturity for long-term policies.
Worked Example: The ₹10 Lakh Policy
The Mathematical Reality of Traditional Endowment Policies
For decades, traditional life insurance policies have been the default "investment" for middle-class India. Agents sell them on the promise of guaranteed returns and yearly bonuses. But the math tells a very different story.
When a traditional policy declares a "Bonus of ₹45 per ₹1000 Sum Assured", it sounds impressive. But there is a massive catch: this bonus is a "Simple Reversionary Bonus". This means the bonus does NOT compound. If you get a ₹45,000 bonus in Year 1, that ₹45,000 sits idle for the next 19 years, earning zero interest.
Albert Einstein famously called compound interest the eighth wonder of the world. Traditional endowment policies actively strip this wonder away from you. Because the bonuses don't compound, the actual internal rate of return (IRR) on these policies usually hovers between 4% and 6%. In a country where inflation averages 6-7%, investing in these policies guarantees that your wealth will lose purchasing power over time.
The golden rule of personal finance is simple: Never mix insurance with investment. Buy a pure Term Life Insurance policy for protection (which costs a fraction of the price) and invest the massive premium difference into Equity Mutual Funds. Your wealth will compound exponentially, and your family will have 10x more life cover.
Frequently Asked Questions
Is the LIC Simple Reversionary Bonus guaranteed?
No. The bonus depends entirely on the profits generated by LIC's participating fund in that financial year. Once declared, however, that specific year's bonus becomes guaranteed and is attached to your policy, payable at maturity.
Does the bonus compound every year?
No. Traditional endowment policies declare a 'Simple' Reversionary Bonus. This means the bonus is calculated only on the original Base Sum Assured, not on the accumulated bonuses from previous years. This lack of compounding is why returns are typically low.
What is a Final Additional Bonus (FAB)?
A Final Additional Bonus (or Terminal Bonus) is a one-time reward given to policyholders who stay invested for a long duration (usually 15 years or more). It is declared in the year of maturity or death and paid as a lump sum.
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