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How Loyalty Additions Work In A Unit Linked Insurance Plan

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February 17, 2017
Offering a little extra is always a good way to retain customers. Loyalty addition as the name suggests, is the extra amount that your insurance company offers you on spending a course with the policy. We all like to get loyalty additions, isn't it? After all who would not want to welcome some extra money? Loyalty additions can be built into any type of insurance cum investment policy.

Different terms are used to describe loyalty additions, such as, additional allocation, extra allocation and premium booster, but they have the same function. The idea behind loyalty addition is to encourage you to pay your premiums on time and stay invested throughout the policy term; this is why loyalty addition comes into picture towards the later part of the policy term; however, different insurance providers have different rules of offering loyalty additions. Some offer loyalty additions after the lock in period, some offer after the maturity, whereas some offer these benefits from the very beginning. Loyalty additions add some extra sum to your investment corpus.

Loyalty additions are common in unit linked insurance plans (ULIPs) and are applied in two ways- as a percentage of the fund value or as percentage of the premium. Loyalty additions are also described as the percentage of the sum assured in case of traditional plans. The value of loyalty additions depend on various factors such as the premium amount, policy term, premium payment term and the period of guaranteed additions; however, the loyalty additions that are paid towards the end of the term plan period are comparatively higher.

A public sector insurer offers loyalty additions to policyholders from tenth year onwards. Here, the insurer calculates the loyalty addition as the difference between the performance of the insurance company and the guaranteed additions. These extra benefits get accumulated over the year and are paid at maturity. Also, you should have at least held the policy for ten years to become eligible for a loyalty reward. Although loyalty additions seem fascinating, it is not a determinant of how good the term plan is. A policy holder must always look out for the more important parameters like cover size, cost, fund quality, return on investment and claim procedure while investing in a term plan.
 

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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