What are the differences between participating and non-participating life insurance policies?


By Anup Seth, Distribution Manager, Edelweiss Tokio Life Insurance

The history of life insurance in India has reached an inflection point. An instrument whose awareness was very low until recently is slowly gaining popularity among a wider population, as the need for financial risk management has become apparent. A new category of life insurance customers has emerged: they are younger, more savvy when it comes to financial planning and expect simpler solutions to meet their needs. As the insurance customer evolves, the need for awareness of life insurance solutions has never been greater.

Although the understanding of term insurance policies is relatively better, wealth accumulation products can be a bit confusing for new clients. It is in this context that I felt it essential to revisit a more fundamental conversation about life insurance products – what are participating and non-participating life insurance policies? What is the difference between these two categories of products? Let’s find out.

Participating life insurance plans

A participating life insurance policy, known as a participating product in industry jargon, allows a customer to participate in the profits of a life insurance company. Simply put, a life insurance company, like most businesses, makes profits over time. Participating policies allow customers to benefit from the annual profits made by the company. Typically, these benefits are paid to customers on an annual basis in the form of bonuses or dividends.

These benefits are separate from the maturity benefits guaranteed by the life insurance contract. Some companies pay out accrued premiums or dividends and terminal premiums at maturity of these policies. In years when clients do not need funds, they can let the bonus accumulate with the insurance company.

Non-participating life insurance plans

A non-participating life insurance policy, known as a non-participating product in industry jargon, is a conventional life insurance solution that provides guaranteed benefits to the client based on predetermined choices made by the client. . There is no provision under this product in which the client can receive a bonus or dividend.

So what are the main differences between an even product and a non-peer product?

A share of the profits: This is the most glaring difference between these two solutions. Participating products allow customers to participate in the profits of a life insurance company, while a non-participating product does not offer such a provision.

Type of services: A non-participating product provides guaranteed benefits to the insured. This includes payment at maturity, guaranteed income payments or death benefit, depending on the composition of the product. A participating policy, on the other hand, has both guaranteed and non-guaranteed elements. Since bonuses/dividends depend on company performance, future payouts cannot be estimated.

Risk level : Although an example has yet to be demonstrated where a customer has lost their investment in a participating life insurance policy, it is considered to be relatively higher risk than a non-participating product. Unlike a non-participating plan, which has guaranteed and fixed benefits, a participating plan has non-guaranteed benefits that depend on company profits and therefore future premiums can never be guaranteed. This is also the reason why non-participating products have a relatively lower premium rate.

While research is essential, information about the various life insurance plans available on the market alone cannot be of use to you. Only when you are aware of your financial needs, both short and long term, can you make informed purchasing decisions. Some life insurance companies also offer a more personalized solution, where you can control when benefits are paid to meet your unforeseen needs. So start your journey by understanding your needs and finding the right customizable solutions.


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