Difference Between Participating and Non-Participating Insurance

Source: adityabirlacapital

Life insurance plans are crucial tools that offer financial security to your loved ones when you are not around. So naturally, before making a purchasing decision, you must understand the details and terms of these policies and weigh your options accordingly.

That being said, you must also learn about the different types of insurance policies that factorise the profit earnings of the insurance company within the plan. This article will exhibit the general difference between participating and non-participating insurance policies to help you weigh your potential options. 

A participating life insurance policy, also known as a par policy, is a plan that allows you to take part in the profits made by the insurance company. You can receive these profits in the form of bonuses or dividends by the end of every financial year.

The pay-out time varies from one insurer to another. However, if you hold a participating life insurance policy, you can use these pay-outs to pay your due premium amount or invest them further to receive interest. Not to mention, these plans also include the full benefits of a life insurance plan. That means your nominees will be entitled to the specified death benefits as per the plan.

Non-participating insurance plans, also referred to as non-par plans, are the ones where you do not receive the benefits of dividend pay-outs or bonuses. Therefore, no matter how much profit your insurer gains in a financial year while you hold this policy, it will not be shared with you.

However, it offers a guaranteed death benefit on the maturity of your plan, which is regardless of the profits earned by the company. 

Based on Type of Returns

For instance, participating insurance policies such as ULIPs may be advantageous as they offer the dual benefit of good returns as well as life coverage. But in case of non-participating plans, you only receive a guaranteed return.

However, note that these returns depend on how the insurance company performs in the market and other variables. Therefore, if you are opting for this type, you must be aware of market conditions and how your insurer is performing. Moreover, based on your financial goals or requirements, you can transfer the invested assets depending on their market performance.

Based on Risk Appetite

This plan can be beneficial for those with a moderate risk appetite and for those who would like to earn extra income while securing their loved ones financially. Non-participating insurance policies, on the other hand, work as traditional plans where your near and dear ones will receive a predetermined sum assured in case of your unfortunate demise.

So, if you are looking for guaranteed life coverage at cost-effective premiums, this is a favourable option. Moreover, with non-par policies, you do not have to worry about the market environment or how your insurance company is performing.

Finally, the difference between participating and non-participating insurance reveals that both options have their own value depending on the requirements of the policyholder. As such, a participating insurance policy will not be constructive if the market conditions are volatile and there is a risk that your insurer will not generate any profit.

In such situations, you can go for a non-par plan. However, when opting for the second, know that you will not be entitled to any extra income apart from a fixed sum assured.