How LIC Bonus Is Calculated: Reversionary Bonus and FAB Explained

Ask most policyholders what bonus their LIC policy earns and they will quote a percentage. Ask them what it is a percentage of and the answer usually stops. It matters, because LIC’s bonus is not a return on the money you pay in — it is an addition to the sum assured, and the difference is large.

The bonus is per ₹1,000 of sum assured

LIC declares a simple reversionary bonus each year as a rupee amount per ₹1,000 of Basic Sum Assured. For New Jeevan Anand on a term above 20 years, the current declared rate is ₹49 per ₹1,000 per year.

On a ₹5,00,000 policy that works out as ₹49 × (5,00,000 ÷ 1,000) = ₹49 × 500 = ₹24,500 a year.

Every year the policy is in force, another ₹24,500 is added. Over a 21-year term that is ₹5,14,500 — slightly more than the sum assured itself.

Three things follow from this that people routinely get wrong.

It has nothing to do with your premium. Two people with the same ₹5 lakh sum assured earn the same ₹24,500 a year, even if one is 25 and pays ₹22,000 a year while the other is 45 and pays ₹38,000. The older buyer pays substantially more for exactly the same bonus.

It is simple, not compound. The bonus does not itself earn bonus. Twenty years at ₹24,500 is ₹4,90,000 — not the ₹6,00,000-odd you would get if each year’s addition compounded.

It vests permanently. Once LIC declares a bonus and it attaches to your policy, it cannot be withdrawn. Future rates can fall, but what has already vested is yours.

Final Additional Bonus is a different animal

The Final Additional Bonus (FAB, sometimes called terminal bonus) is paid once, when the claim arises — at maturity or on death. It is not declared annually, it does not vest, and you forfeit it entirely if you surrender the policy.

FAB is payable only on longer policies, generally 15 years and up, and the scale accelerates steeply:

Policy term	FAB per ₹1,000	On a ₹5 lakh policy
15 years	₹30	₹15,000
20 years	₹90	₹45,000
25 years	₹210	₹1,05,000
30 years	₹465	₹2,32,500
35 years	₹920	₹4,60,000

A 30-year policy earns five times the FAB of a 20-year policy on the same sum assured. This is the single strongest financial argument against surrendering a policy in its final years — walk away at year 27 of a 30-year contract and you hand back a quarter of the maturity value.

Putting it together

The maturity amount of a participating LIC policy is:

Basic Sum Assured + (bonus rate × policy years × sum assured ÷ 1,000) + (FAB rate × sum assured ÷ 1,000)

For a ₹5,00,000 New Jeevan Anand over 21 years:

• Sum assured: ₹5,00,000
• Reversionary bonus: ₹49 × 21 × 500 = ₹5,14,500
• Final Additional Bonus: ₹110 × 500 = ₹55,000
• Maturity: ₹10,69,500

Run the same numbers for your own policy on the LIC maturity calculator, or open the New Jeevan Anand calculator to see the premium alongside it.

What is guaranteed and what is not

Only the Basic Sum Assured. Everything else depends on LIC’s valuation surplus, which is a function of its investment returns, mortality experience and expenses in a given year.

Rates have been broadly stable for years, which is why holding today’s rate flat across a 20-year projection is the standard convention — LIC’s own benefit illustrations do the same, alongside a lower scenario. But stable is not guaranteed, and any calculator that presents a projected maturity figure as a promise is misleading you.

If you want certainty rather than a projection, the non-participating plans are built for it. Bima Jyoti credits a contractual ₹50 per ₹1,000 every year; Bima Ratna credits ₹50 rising to ₹60. The numbers are smaller than a good participating projection, but they are written into the policy rather than declared each spring.