A participating life insurance policy, also known as “Par Policy”, share in the profits made by the insurance company with policyholders through their participating funds.

The par plan is designed to provide a dual benefit of insurance cover and corpus growth. Thus, in addition to the guaranteed life coverage, it also provides non-guaranteed benefits in the form of bonuses.

This dual-purpose approach can make participating insurance an attractive choice for individuals seeking financial security and the potential for long-term financial growth.

Let’s discuss the key features of participating plans, their working and how they differ from non-participating plans.

A participating policy is a type of life insurance policy where policyholders participate in share of profits made by insurance company’s participating funds. s. Apart from the life insurance coverage, it also provides additional bonus depending on the insurance company's investment gains.

So, every financial year throughout your policy tenure, if the company generates investment gains, you will get a share in the form of bonuses. These earnings can be used to pay off your due premiums or further invest it to receive interest.

Participating life insurance serves as a robust investment tool that fetches you both life coverage as well as investment benefit.

So, if you are planning to purchase one, it will be wise to understand its features and benefits well. Here are some of the primary features of participating policies:

Payouts

In a participating insurance plan, the investment profits made by your insurer will be paid to you as bonuses. These payments are generally made on an annual of half-yearly basis, depending upon the fund and profits declaration by the company.

Guaranteed Payment

In these policies, you will receive a guaranteed return of the sum assured as death or maturity benefits, irrespective of the profits made by your insurer.

Death Benefit

The death benefit is the guaranteed amount that is paid to the nominee in case of unfortunate death of the life assured. It is generally a sum of the following:

• Sum Assured on death
• Accrued Bonuses
• Any additional benefits, if declared by the insurer

Sum assured on death is calculated as the amount highest of:

• 10 times the annualised premium
• Sum Assured on Maturity
• Death Multiple X Annualised Premium

Non-Guaranteed Payments

Non-guaranteed payments comprise the profits made by your insurer in a financial year. You will be entitled to the share. However, the profit percentage may vary depending on the company’s performance.

Deferral

The policyholder has a choice to defer the payouts from their policy and accrue them to withdraw at a later stage. This helps in increasing the return by way of compounding.

Cost of Insurance

Buying a participating insurance plan is costlier than regular term insurance policies, as it serves the dual purpose of life coverage as well as an investment tool.

Tax-Benefits

Participating policies offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, for the premium paid and the benefits earned respectively. The tax benefits, however, depend on the prevailing tax laws.

Flexibility

In traditional par insurance plans, there is a lock-in period during which you cannot make a withdrawal of your investment. After your policy has attained a paid-up value, you can get a surrender benefit from the policy. This is one of the critical features of such policies.

Premium Payment Frequency

Like most insurance policies, participating plans also allow you to pay premiums either in a lump sum or at regular intervals, monthly, quarterly, annually and bi-annually. Moreover, you can also use the profits received as dividends to pay your premiums or reinvest them for higher returns.

Other Benefits

Some plans also provide benefits like interim survival benefit, guaranteed additions, or terminal bonus.

A participating life insurance policy can be a favourable option if you are looking for a safe investment option along with secured life coverage for your loved ones. 

Participating plans in India, primarily invest in safe options which are exposed to lower market risks. Therefore, you can choose a plan wisely to get dual benefits with higher profits. 

Consequently, the cost of premiums is also higher for these plans. Therefore, if you are looking for low-cost options on life insurance plans, a non-par policy will better fit your needs. 

With a non-participating plan, you will get a guaranteed return of the sum assured as a death or maturity benefit without being worried about the company performance. 

Finally, life insurance policies are essential investment options that financially secure you and your family under challenging circumstances. Participating life insurance policies are comprehensive plans that offer dual benefits, including guaranteed life coverage and non-guaranteed returns of the investment profits your insurer makes.

Therefore, it not only takes care of your insurance needs but also serves well considering economic fluctuations and the inflationary environment. However, before choosing this plan, gathering knowledge about market conditions and different funds will be helpful to make the best of this option.