What is the Difference Between Participating and Non-Participating Life Insurance Policy?

Understanding the importance of life insurance and its small details is important to recognize how it could help protect the family’s financial future. However, one would usually need to know that not all policies are the same. Life insurance plans come in all types of shapes and sizes and there are different types of plans available under this category. They are categorized into different groups depending on various factors. 

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One such factor of difference is whether or not a life insurance policy passes on the insurer’s profits to the life assured. On the basis of these factors, two types of plans are there: Participating and non-participating life insurance plans. Wouldn’t you agree that comparing your options is important before buying any plan? Let’s discuss the difference between participating and non-participating life insurance in detail to make your selection easy:

What is a Participating Life Insurance Policy?

A participating life insurance plan, also called a par policy, helps the life assured to participate in the life insurance company’s profits. Just like any other organization, a life insurance company also earns profits throughout the financial year. And, in a participating plan, the benefits from these profits are passed on to the life assured.

These benefits are paid to the life assured in form of dividends or bonuses. Generally, the payments are done every year, on yearly basis. If you have a participating policy, then you can make use or receive bonuses or dividends in the below ways:

  • You can get the payouts as and when they are paid by the life insurance company

  • You can use payouts to pay the premium amount due on your plan

  • You can deposit the dividends or bonuses with the insurance company and permits those funds to earn interest.

These benefits from participating plans are in addition to the maturity benefits (regular) guaranteed by the life insurer. Participating life insurance plans offered by some insurers pay the accumulated paid-up additions and terminal bonus upon maturity if any.

What is a Non-Participating Life Insurance Policy?

Non-participating plans, also referred to as non-par policy do not provide any dividend benefits or payouts. In simple words, the life assured does not participate in the insurer’s profits.

Unlike a participating plan, a non-participating plan does not pay any dividends or bonuses based on the profits of the insurance company. However, these policies do not pay out any guaranteed payouts on maturity.

Key points of Difference: Participating Vs. Non-Participating Life Insurance Policy

Now you are quite clear about the meaning of both types of policies, let’s discuss how these two plans differ from one another. Following are the important points of difference between participating and non-participating life insurance policies:

  1. Profits share

    A participating plan helps you to participate in the company’s profits, while a non-participating plan has no such feature.

  2. Guaranteed and non-guaranteed benefits

    A non-participating plan offers only guaranteed benefits to the life assured. This is the life cover that is to be paid on the death of the policyholder or the maturity payouts are payable at the time of plan maturity. On contrary, a participating plan pays both guaranteed and non-guaranteed dividends or bonuses on the company’s profits.

  3. Payment Frequency

    The life assured receive dividends or bonuses shared with them on an annual basis when they hold participating plans, whereas this kind of benefit is not available under a non-participating plan from an insurance company.

  4. Flexibility

    A participating policy offers you maximum flexibility. Like in a market-linked plan, you can easily switch and redirect your funds as per your requirements. On the other hand, a non-participating policy is quite firm as the benefits that are claimed with this plan are fixed at the time of policy issuance.

In order to provide better clarity on the important parameters of the difference between participating and non-participating life insurance plans, we have summarized all the details in a table:

Factors Participating Policy Non-Participating Policy
Definition A participating plan helps the policyholder to share the insurer’s profits. These benefits are shared in form of dividends or bonuses. It is also called a with-profit plan. In this, the profits are not shared and no dividends are paid to the life assured. This policy is called a non-par or without-profit policy.
Non-Guaranteed Payments The dividends or bonuses generally paid out on a yearly basis No non-guaranteed payments in non-participating plans because the profits of a company are not shared.
Guaranteed Payments The bonus paid out under this plan is not guaranteed. It depends on the company’s performance. In this, there is no dividend or bonus that is paid to the life assured. However, some guaranteed benefits on life assured’s death, his/her survival, or the maturity of the policy.
Benefits The main benefit of the participating plan is to provide protection and returns in the form of dividends or bonuses. The premium amounts charged are comparatively less compared to participating plan.

Wrapping It Up!

Participating plans pay dividends to the life assured i.e., the policyholders are participating in the insurer’s profits which the company pays in form of dividends. Non-participating plans do not offer any dividends and the policyholders don’t participate in the insurer’s profits. Participating plans have comparatively insignificant while non-participating plans are safer as they offer only guaranteed profits. However, there are stable and safe participating plans such as ULIPs.You can enjoy tax benefits and high ULIP returns with such a type of investment.

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