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Difference Between Participating and Non Participating Insurance

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Differences between Participating and Non-Participating Term Insurance
February 20, 2024

Table of Content

 

In order for individuals and their families to be financially secure, they must have an insurance plan. If you are searching for the best insurance options, you may come across terms like "participating" and "non-participating insurance." It is important to know the differences between these two types of insurance plans so that you can make an informed decision that meets your needs and fulfils your goals. In this article, we'll look at the details of participating and non-participating insurance plans and examine their differences. 

What is Participating and Non-Participating Insurance?

Before you purchase anything, you often take a moment to evaluate your options. From cars to flour, you consider the cost, features and benefits before you make your decision. The same rings true for insurance. Before you purchase a plan, you must compare the various options available and select wisely. While comparing insurance plans, you might come across the terms participating insurance and non-participating insurance policies. Let’s look at what these terms mean and how they can impact your decision. 

What is a Participating Insurance Plan?

Participating insurance plans, also known as par policies, allow the life assured to share in the company's profits. Throughout the year, life insurance companies accrue profits, just like any other organisation. Those who participate in a participating plan receive dividends and bonuses derived from these profits. These payments are usually made annually. There are several ways in which you can utilise and receive dividends and bonuses if you hold a participating policy:

  • When the life insurance company distributes payouts, you will receive them.

  • If you have a plan with a due premium amount, use the payouts to pay it.

  • Make sure dividends or bonuses are deposited with the insurance company so that interest can be earned on them.

These benefits are in addition to the regular maturity benefits that are guaranteed by the life insurance company. If applicable, some insurers offer terminal bonuses upon maturity along with paid-up additions. 

What is a Non-Participating Insurance Plan?

Non-participating insurance plans, also known as non-par plans, do not pay dividends. A policyholder does not benefit from the profits generated by an insurance company.

A non-participating insurance policy does not pay bonuses or dividends based on the insurer's profits, as with participating insurance policies. These insurance plans do, however, provide guaranteed benefits upon maturity.

Key Difference between Participating and Non-Participating Plans

We'll look at the differences between participating and non-participating insurance plans now that you understand how they differ. A participant's life plan differs from a non-participant's plan in the following ways:

  • Profit sharing: Non-participating plans do not allow you to participate in profits, whereas participating plans do.

  • Guaranteed and Non-Guaranteed benefits: In terms of guaranteed benefits, a non-participating plan primarily provides guaranteed benefits to its members, such as death benefits upon the plan holder's death or maturity payouts upon plan maturity. As opposed to a participating plan, a participating plan pays both guaranteed and non-guaranteed dividends and bonuses from the company's profits.

  • Payment frequency: Those who participate in participating plans receive dividends or bonuses annually, whereas those who do not participate in such plans do not receive such benefits.

  • Flexibility: A participating plan allows you to easily switch funds and redirect your money based on your needs, similar to a market-linked plan. A non-participating plan, on the other hand, has a rigid benefit structure, with benefits fixed at the time of issuance.

A Quick Comparison between Participating Vs Non-Participating Plans

In non-participating insurance plans, the policyholder receives only guaranteed benefits, such as the assured sum upon death or maturity benefits when the plan matures. Unlike a participating insurance plan, which is dependent on the insurer's profits, a participating insurance plan offers both guaranteed benefits and non-guaranteed bonuses or dividends.

In the table below, we have summarised the key points of participating and non-participating insurance plans in order to provide a better understanding. 

 

Participating policy

Non-participating policy

Meaning

Participating plans allow you to share in the profits made by the insurance company. The profits are distributed in the form of bonuses or dividends. It is also known as a with-profit policy.

A non-participating plan does not provide profit-sharing and does not pay dividends to policyholders. It is also known as without-profit or non-par policies.

Payments made

In most cases, bonuses and dividends are paid out annually.

Because there is no profit sharing in non-participating policies, there is no payment.

Payment guarantee

There is no guarantee that the bonus will be paid out under this policy. It depends on how well the insurance company performs.

No bonus or dividend is paid to policyholders of non-participating policies. It is important to note, however, that death benefits and maturity benefits are guaranteed.

Benefits

A participating policy does not only provide protection but also provides bonuses as a return.

Premiums for these policies are lower than the cost of participating policies, which is an added benefit.

Examples

Bonuses and dividends paid by Unit Linked Insurance Plans can be considered participating policies.

An example of a non-participating policy is term insurance or permanent life insurance.

Conclusion

Policyholder participation in the insurance company's profits represents the key distinction between participating and non-participating insurance plans. Non-participating plans provide fixed premiums and guaranteed benefits without the potential for additional returns. Participating plans offer dividends and the opportunity to benefit from favourable financial performance. Think about your risk tolerance, financial goals, and preferences for potential profit participation when choosing between the two types. To decide which plan is right for you, you should speak with a licensed insurance professional. Ultimately, both participating and non-participating insurance plans serve the purpose of providing financial protection, and the choice will depend on your individual circumstances.

FAQs on Difference Between Participating vs Non Participating Insurance

Q. Who should purchase the participating and non-participating insurance plans?

For individuals who are willing to take on higher risk in exchange for the potential of greater returns, participating insurance plans offer the opportunity for wealth growth through market-linked investments. These plans provide additional payouts in the form of bonuses or dividends based on the profitability of the insurance company, but these payouts are not guaranteed. In contrast, individuals who prioritize guaranteed income and have a low tolerance for risk may find non-participating insurance plans more suitable. These plans offer a fixed death or maturity benefit, giving policyholders peace of mind and certainty in achieving their financial goals. 

Q. What is participating and non-participating insurance? 

Participating insurance offers policyholders the opportunity to receive dividends as a share of the insurer's profits. Non-participating insurance, however, does not offer this profit-sharing aspect, so policyholders pay lower premiums.

Q. What is the difference between non-participating and participating equity?

While non-participating equity shares pay fixed dividends without providing additional returns, participating equity shares offer annual dividends or bonuses on top of the fixed dividends.

Q. Are participating policies more expensive than non-participating policies? 

Participating policies offer investors a share of the insurance company's profits through investments in market-linked funds. Therefore, these policies are more expensive than non-participating ones, which only offer fixed death and maturity benefits.

Q. What is non-participating insurance?

In a non-participating insurance plan, policyholders do not share in the insurer's profits. Instead, they receive a predetermined sum assured as either a death benefit or a guaranteed maturity benefit, without any additional dividends or bonuses. 

ARN - ED/12/23/7217

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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