A benefit is guaranteed only when the contract or benefit illustration identifies it as guaranteed and its conditions are met. Bonuses or projected values shown under assumed scenarios should be kept separate unless they have already vested under the policy.
Why the distinction gets blurred
Traditional life policies can combine fixed contractual benefits with bonuses or other values that depend on future declarations or assumptions. A single large maturity figure may therefore contain components with very different levels of certainty.
Look for explicit labels
Start with the policy schedule, policy wording and benefit illustration. Search for headings such as “guaranteed”, “non-guaranteed”, “illustrative”, “bonus”, “loyalty addition” and “subject to declaration”.
The most useful approach is to create separate columns for:
- the guaranteed benefit and its conditions;
- any benefit that has already vested;
- future non-guaranteed benefits and their assumptions; and
- rider benefits with their separate terms and expiry dates.
An illustration is not the same as a promise
A benefit illustration may show how values could develop under stated assumptions. Its purpose is to explain possible policy outcomes—not to convert every displayed number into a guaranteed return.
Ask these questions for each number:
- Where exactly does it appear?
- Is it labelled guaranteed?
- Is it already vested or only projected?
- What event triggers payment?
- What premiums must be paid for it to remain available?
Participating policies
In a participating policy, policyholders may participate in the experience of the participating fund through bonuses or additions, subject to the policy terms and insurer declarations. Already vested bonuses and future undeclared bonuses should not be treated as the same thing.
Non-participating policies
Non-participating does not necessarily mean that every benefit is guaranteed. Read the product wording. Some benefits may be fixed while others depend on stated conditions, indices or choices.
What to request from the insurer
If the document is unclear, request an in-force policy statement or official confirmation showing current status, accrued or vested additions where applicable, and the benefits payable under relevant scenarios. Keep the insurer's response with the policy record.
Sources and further reading
- IRDAI Master Circular on Life Insurance Products listing
- IRDAI circulars concerning life insurance benefit illustrations
- LIC policy conditions