ICICI Prudential Life Insurance has announced an annual bonus of Rs 867 crore for all eligible participating policyholders for financial year 2020-21. This is 10 per cent higher than the payout last year and is the highest bonus declared by the insurer till date.

When a life insurance company makes profit (surplus), a part of it is distributed among policyholders in the form of bonus payments every financial year with the payout being made at maturity. This is similar to dividends paid by profit making companies for its equity shareholders.

Only participatory plans (with-profit plans) qualify for bonus, unlike non-participatory plans, and there is a premium differential between the two. ICICI Prudential said that a total of 9.8 lakh participating policyholders will benefit from the bonus payout.

This is the 15th consecutive year that the insurer has declared a bonus. As on March 31, 2021, 96.8 per cent of the fixed income portfolio of the insurer is invested in sovereign or AAA rated papers and there has been zero default in the portfolio since inception.

“This is the highest annual bonus in the history of the company. It coincides with the 20th anniversary of our operations. It demonstrates our customer focus, resilience and ability to navigate through the challenges posed by the pandemic,” said N.S. Kannan, managing director and CEO of ICICI Prudential Life Insurance.

Life insurers often tap the bonus route to market their products and make it more attractive for prospective policyholders. “Unlike commodities, insurance is intangible that works on the basis of trust that at the time of certain events such as death or maturity, claims will be settled and bonus would be paid. So, bonus is an incentive used to market protection plans,” said an insurance industry executive.

LIC, which is the country’s largest life insurance company, paid a huge sum of Rs 51,019.65 crore in 2019-20 as bonus to its participating policyholders.