Difference Between Participating and Non-Participating Insurance

What is Participating Life Insurance?

What is Non-Participating Life Insurance?

Differences Between Participating and Non-Participating Insurance

The fundamental difference between par and non-par insurance is that one allows you to partake in the company’s profit earning, while the other does not. However, to understand the functional difference between the two, you can go through the following table:

Parameters    Participating Insurance Policy Non-Participating Insurance Policy
Share of Profits You will be entitled to shares of profits earned by the insurance companies as bonuses or dividends. You will not receive any type of profit shares earned by the insurance provider.
Guaranteed Benefits Your insurance providers will offer you guaranteed death and maturity benefits based on the type of life insurance policy you buy. Your insurer will offer your nominees guaranteed benefits, such as sum assured and maturity benefits, depending on the type of plan chosen.
Non-Guaranteed Benefits Your insurer will offer non-guaranteed benefits in the form of bonuses and dividends depending on how the insurance company performs in the market. Your insurer will not offer any non-guaranteed benefits as the profits are not shared.
Payment Mode The death benefits or maturity benefits will be paid as a sum assured, and the profits will be shared as bonuses or dividends. Payments are made as a sum assured in the light of the policyholder’s demise or get maturity benefits as per the selected policy.
Payment Frequency Apart from the sum assured at the end of the policy term, you will receive annual payments of the earned profits. No annual payments are made, as you cannot partake in the profit shares.
Flexibility This plan offers you more flexibility as it is market-linked. On the other hand, these plans are rather rigid as they offer a fixed amount as death or maturity benefits at the end of the term.
Cost of Premiums The cost of premiums is on the higher end as these plans offer two types of benefits with added flexibility. The cost of premiums is relatively more affordable and depends on the type of life insurance plan you select.

Which Should You Opt Between Participating and Non-Participating Insurance?

FAQs about Difference Between Participating and Non-Participating Insurance

What are guaranteed and non-guaranteed returns? up-arrow

In terms of life insurance, a participating insurance plan offers both guaranteed and non-guaranteed benefits. On the other hand, for non-participating plans, you will receive only guaranteed returns.

Guaranteed returns include the sum assured offered after the death of the policyholder or the maturity benefit received at the term’s end. At the same time, non-guaranteed returns include extra income offered as bonuses or dividend pay-outs depending on the company’s market performance.

Why should I choose a participating life insurance plan? up-arrow

You can choose a participating insurance plan to get dual benefits. You can receive both life coverage as well as annual profit returns. In addition, availing this plan can also fetch you tax benefits of up to ₹1.5 Lakhs as per Income Tax act of 1961 under Section 80C on the invested amount and also pay your premium instalments from the profits earned.

How do par insurance plans generate returns? up-arrow

In a par policy, when you pay your premium, it gets added to an investment pool along with the payments of other policyholders. After that, the insurance company invests these funds in various market assets to generate a profit return.

These assets mainly include corporate bonds, government bonds, equity shares, properties, etc. Your insurer may also change this investment portfolio over time to get better returns. After the end of every financial year, you will receive a share of these profits as dividends or bonuses.