What is cumulative bonus and how does it work?
What is cumulative bonus? The cumulative bonus refers to a monetary benefit which is added to the insured sum at the start of each policy year. Since the bonus is cumulative — it increases for each year regardless of the fact the claim is made or not. This cumulative bonus is available for individual as well as family floater policies. Generally, insurers offer an increase of 5 to 50 percent of the original sum assured for each year. The insurance policy may specify a maximum threshold on the cumulative bonus amount. Let us understand this with an example. Suppose Ravi Kalra has an insurance policy of ₹ 10 lakh and he gets this insurance cover during the first year. If the policy is entitled to 20 percent increase in the sum assured, the policy sum grows to ₹ 12 lakh the following year. The next year as well — the insured amount will rise by another ₹ 2 lakh, thus increasing the overall sum insured to ₹ 14 lakh. “Insurance companies today offer new-ag...