Understanding Guaranteed Additions in Life Insurance Plans

Imagine you have a savings jar where you regularly deposit money. Every year, the jar earns bonus coins just for being consistently filled. These bonus coins are like “guaranteed additions” to a life insurance policy. 

In the context of life insurance, 

The policy = savings jar, 

The premiums you pay = regular deposits

The guaranteed additions = the bonus coins that the insurance company adds to your policy. 

In short, guaranteed additions are extra benefits provided by the insurance policy as a reward for your commitment. They are automatically added over time to your savings jar, enhancing the policy’s value.

In this blog, we will learn all about the “Guaranteed Additions” in a life insurance policy and how guaranteed benefits in insurance work. 

Let’s start! 

Importance In Financial Security And Life Insurance Planning

Here, we will understand the importance of policy additions in terms of financial security and life insurance planning. 

1. Long-Term Financial Security

Guaranteed additions are like a savings boost in your life insurance policy that helps you plan for the future. As long as you pay the premiums timely, the additions will ensure that your policy grows over time. 

For example, if your policy adds ₹10,000 each year, after ten years, you'll have an extra ₹1,00,000 added to the total amount, plus any interest. This amount can be used for any of your future expenses. 

2. Increased Savings Potential

Guaranteed additions boost your policy’s cash value and payout. This means the plan will keep accumulating more savings and strengthen your financial stability without any additional effort. The longer you are committed to your plan, the more it will grow. 

3. Growth That Is Predictable 

The best part about guaranteed additions is that their growth is predictable. Unlike variable bonuses that can change based on the insurance company's performance, guaranteed additions are fixed and predetermined. 

This means if your policy guarantees an addition of ₹10,000 every year, you can count on this amount being added to your policy no matter what. 

How Do Guaranteed Additions Work In Life Insurance?

As already explained above, these additions are additional benefits that policyholders receive as a bonus. 

Now, the question arises: When are guaranteed additions given to the insured?  

Basically, a policyholder is eligible to receive guaranteed additions in the below three situations, whichever happens earlier. 

• Policy Maturity: When the life insurance policy matures or ends, guaranteed additions are added to the maturity amount.
• Policyholder’s Death: If the policyholder dies during the policy term, the guaranteed additions are included in the “death benefit” given to the nominee.
• Policy Surrender: If the insured decides to give up on the policy before its maturity, these additions are included in the “surrender value.” For those who don’t know, “surrender value” is given as a benefit at the time of policy surrendering.  

Next, we’ll explain: 

How Guaranteed Additions Are Calculated or How Guaranteed Additions Work? 

Generally, GAs are calculated on the basis of 

• Policy term 
• Premium amount paid
• Policyholder’s age
• Premium payment term (PPT) 

The longer the policy term, the more guaranteed additions it will accumulate. Similarly, the amount of your premium and how long you pay will also have a major impact. Higher premiums and longer terms usually result in more additions. 

Disclaimer: The amount of the guaranteed addition given to the policyholder varies from insurer to insurer. 

Now, let’s understand how guaranteed additions are added to a policy with an example of the “ICICI Pru Assured Savings Insurance Plan.”

The guaranteed addition rate for this plan will depend on the chosen policy term (as shown in the table below):

Let’s say Mr Singh bought a policy term of 12 years, so the GA rate will be 10%. Plus, he paid ₹20,00,000 in premiums annually. 

The guaranteed additions Mr Singh will receive are shown below. 

Benefits Of Guaranteed Additions In Life Insurance

Now, let’s look at some of the benefits of guaranteed additions in detail.

1. Increased Policy Value

The additions automatically increase your policy value, which means if you continue to pay the premiums for a longer time, the policy becomes more valuable. As a result, you’ll receive a larger payout when you make a claim or at the time of maturity.

2. Simplified Planning For Future Goals

The predictable and steady growth from guaranteed additions makes it easier to plan for long-term goals like higher education for your children, purchasing a home, or securing a comfortable retirement.

3. Encourages Long-Term Commitment

Guaranteed additions encourage you to stay committed to your life insurance plan. Knowing that your policy will grow over time and provide more than just the basic payout gives you a strong reason to stick to it. 

4. Enhanced Policy Benefits

The additions increase your policy benefits by providing higher maturity amounts and better loan options. It makes your policy a valuable financial asset to assist you or your family in case of any unfortunate event.

Types Of Life Insurance Policies Offering Guaranteed Additions

Below is a list of common life insurance policy types offering guaranteed additions:

1. Endowment Insurance Plan

An endowment insurance plan combines life insurance with a savings component. In these policies, a lump sum amount is paid at the end of the policy term or on the policyholder’s death. Guaranteed additions are added to the sum assured, which ultimately increases the total payout.

2. Money Back Insurance Plan

Money-back plans provide periodic payouts during the policy term, along with life cover. Guaranteed additions increase the amount of these payouts and the final maturity benefit. 

3. Whole Life Insurance Plan

Whole Life Insurance plans provide coverage for almost 99 years. It has both death benefit and cash value components whose value gets increased due to guaranteed additions accumulation. 

4. ULIPs – Unit Linked Insurance Plan

This plan combines insurance and investment and offers guaranteed additions that increase the fund value of the policy. The additions ensure that both the life coverage and the investment component grow, providing better financial results.

Little-Known Facts About Guaranteed Additions In Life Insurance

Here, we will discuss the lesser-known facts about guaranteed additions to life insurance.

• Fixed Amount: GAs are fixed, which means the policyholders know the exact amount that will be added to their policy.
• No Market Risk: Guaranteed additions are not affected by market fluctuations. 
• Boosts Loan Value: Policies with guaranteed additions typically have a higher loan value.
• When Guaranteed Additions Are Paid: The guaranteed additions are added to the payout when the policy matures, when the policyholder passes away, or if you surrender the policy early, whichever happens earlier.
• Policy Specific: Not all life insurance policies offer guaranteed additions. It’s essential to check the specific terms of the policy to understand if and how guaranteed additions are included. To do so, you can go through the policy brochure or ask the insurance advisor directly. 
• On What Terms Guaranteed Additions Vary: These depend on the premium amount, policy term, and premium payment term of the policy.

Guaranteed Additions Vs. Bonus: What’s The Difference?

While both guaranteed additions and bonuses enhance a policy's value, they differ in several key aspects. Below is a quick comparison between guaranteed additions vs bonuses. 

Conclusion

Guaranteed additions to a life insurance plan steadily increase your policy's value and provide enhanced benefits without any extra effort. So, if you are looking to buy an insurance policy that offers guaranteed additions, get in touch with our insurance advisor at +91-7551196989. 

FAQs (Frequently Asked Questions)

Ques 1. What are Guaranteed Additions?

Ans. Guaranteed additions are fixed, predetermined amounts added to your life insurance policy each year. They increase the overall value of your policy, providing a higher payout at maturity, death, or if you surrender the policy.

Ques 2. What are the bonuses in a life insurance policy?

Ans. The bonus in the life insurance policy is the additional amount that the policyholder receives in addition to the basic sum assured. It is a share of the profit that the insurance company makes in a year from investments in securities, bonds, debt, and equity.

Ques 3. Will I get Guaranteed Additions if I surrender my policy?

If your policy has guaranteed additional benefits, the specific pre-determined amount will be added to the surrender value and will be paid out to you at the time of surrendering. 

Ques 4. What is the main benefit of Guaranteed Additions?

Ans. The main benefit of the additions is they increase your policy value over time and give you the peace of mind that you will receive much more payout than the basic maturity amount of the policy. 

Ques 5. How are Guaranteed Additions calculated?

Ans. The additions are calculated at the rate of per 1000 of the sum assured for a policy term. However, the exact calculation of the policy depends on the terms and conditions of the particular policy.