Participating Life Insurance Plan: Meaning, Benefits and How it Works

What Is a Participating Insurance Policy?

What are the Features and Benefits of Participating Insurance Plans?

How Is a Participating Plan Different from a Non-Participating Plan?

A non-participating insurance policy, in contrast to a participating insurance policy, does not pay out bonuses or dividends based on the insurer's profits. They do, however, provide guaranteed benefits when they mature. It is also referred to as a non-par policy.

Here is how par and non-par plans differ from one another:

Basis Non-Participating Insurance Plan Participating Insurance Plan
Meaning As a policyholder, you do not participate in the insurance company’s investment profits. Hence the name Non-Participating or Non- Par As a policyholder, you participate in the insurance company’s investment profits and receive their profit portion as bonus. Hence the name Participating or Par
Premiums Charged Insurance providers charge lower premiums from non-participating policy seekers Premiums are comparatively higher for participating policy
Returns Promised Registered beneficiaries receive assured death benefits in case the policyholder meets demise within the policy term.
In certain cases, the insurer may offer maturity benefits to the insured person at the end of the plan’s tenure
Participating insurance buyers enjoy periodic bonus payments apart from maturity benefits, if the insurance company makes profits. Besides, just like non-participating plans the beneficiaries are entitled to death benefits
Long-Term Costs Long-term costs are more as there are no additional bonuses attached to a non-participating plan Long-term costs are less as you get yearly bonuses that appreciates as per cash value policy
Risk factor These plans come with little to no risk and the beneficiaries get assured death benefits Minor risk is there as a part of your money gets invested in different financial securities, like bonds.

Which one to Choose Between Participating and Non-Participating Life Insurance Plans?

FAQs about Participating Life Insurance Plan

What are the risks of participating policies?

Par policies have a higher cost of premiums. The profits made by the insurer are determined by the surplus earnings made after adjusting expenses and investments. Therefore, if your insurer is unable to make substantial profits, the high-cost premiums may not bring much value to your investment.

What are Dividends in Participating Insurance Plans?

Dividends are a portion of the insurance company's profits that are paid to policyholders. In participating plans, policyholders may receive dividends in cash, use them to reduce premiums, or leave them to accumulate as additional cash value.

How can Policyholders Use these Dividends from Participating Plans?

Policyholders have options: They can receive dividends as payouts, use them to reduce premium payments, purchase additional coverage, or let them accumulate to increase the policy's cash value.

Are Participating Insurance Plans More Expensive than Non-Participating Ones?

Participating plans tend to have higher premiums than non-participating ones due to the potential for dividend payouts and the associated costs of managing investments.

Can Policyholders take out Loans Against their Participating Plan?

Yes, policyholders can take loans or against the surrender value of their participating policy.