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

Life insurance is vital in providing financial protection for individuals and their families. When looking for the best life insurance options, you may come across the terms “participating” and “non-participating” policies. Understanding the difference between these two types of life insurance can help you make an informed decision that aligns with your needs and goals. Let’s discuss the characteristics and differences between participating and non-participating life insurance plans in detail. 

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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 through dividends or bonuses. Generally, the payments are made every year on a yearly basis. If you have a participating policy, then you can make use of or receive bonuses or dividends in the following ways:

  • You can get the payouts as and when the life insurance company pays them

  • 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.

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What is a Non-Participating Life Insurance Policy?

Non-participating plans or non-par policies do not provide any dividend benefits or payouts. Simply put, 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 the 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 annually 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.

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Comparison between Participating Vs Non-Participating Plans

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 policy's maturity.
Benefits The main benefit of the participating plan is to provide protection and returns in the form of dividends or bonuses. The premium amounts of term insurance charged are comparatively less compared to participating plans.

Wrapping It Up!

The key distinction between participating and non-participating life insurance policies lies in the participation of policyholders in the insurance company's profits. Participating policies offer potential dividends and the opportunity to benefit from favourable financial performance, while non-participating policies provide fixed premiums and guaranteed benefits without the potential for additional returns.

When choosing between the two types, consider your risk tolerance, financial goals, and preferences for potential participation in the insurer's profits. Consulting with a licensed insurance professional can help you navigate the options and select the policy that best aligns with your individual needs. Ultimately, both participating and non-participating policies serve the purpose of providing financial protection, and the choice depends on your personal circumstances and objectives.

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