The favourite showcase item in pension-insurance offers is the bonus: 'up to X% of your premiums back!' The bonus is a genuine item – but only someone who also reads its conditions understands its true weight. This article shows how the bonus fits into the full cost picture, and what to watch for when comparing.
- Bonus and loyalty credits are credits paid at set points in the term, under conditions – typically tied to continuous premium payment.
- The bonus partly offsets the higher deductions of the early years – the net picture is cost + bonus + tax credit together.
- When comparing, the bonus's conditions (when, how much, what can forfeit it) matter just as much as its size.
How do they work?
In the typical structure, the insurer credits the policy, at set anniversaries of the term – for example after the first years, then in stages – with a set percentage of the premiums paid or of the savings. The condition for the credit is typically continuous premium payment and the policy remaining in force; a premium holiday, a premium reduction, or a partial surrender can reduce or forfeit the bonus entitlement.
The exact rules vary a great deal from product to product – the same word 'bonus' can hide either a generous or a strict system. The bonus chapter of the policy terms is therefore mandatory reading (how to read the policy terms).
The bonus's place in the full picture
The bonus isn't a gift – it's part of the cost structure: designs use it to offset the higher deductions of the early years – the client who stays the course gets it back, the one who exits early doesn't. That's why the bonus should never be looked at on its own, only together with the costs: a product with higher deductions and a large bonus can end up better or worse overall than one with more even pricing.
This is what the TKM is for: the indicator factors in bonuses too, under its own methodology – but because of their conditional nature, I also give them a separate column in my comparison table.
The typical questions you need to ask
- Exactly when do the credits fall due, and in what amount?
- What happens to the bonus entitlement during a premium holiday, a premium reduction, or a partial surrender?
- Is the bonus based on the premiums paid or on the savings' value?
- Is the bonus paid if the policy ends before the end of the term through a pension payout?
- Does the bonus entitlement survive without accepting indexation?
The fifth question is the sneaky one: in some designs the bonus is tied to accepting indexation – this needs to be clarified before you sign (the indexation article).
The sensible attitude
The bonus is a good thing – but it's worth planning around it cautiously: a future credit tied to conditions isn't the same as a low cost today. My own practice: the decision is grounded in the full cost picture (TKM + bonus conditions), and the bonus is a pleasant reinforcement for staying the course over the long run – not the main argument for signing.
And the most important point: the bonus, too, rewards a policy that's seen through to the end. Sizing the premium correctly (what premium to start with) is a precondition here as well – the best bonus programme is the policy that never gets abandoned.
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