Difference between Participating and Non-Participating Life Insurance Policies

Insurance products become incomprehensive due to its terminology. In our effort of de-jargoning Insurance for you, we shall discuss the difference between participating and non-participating policies.

‘Participation’ means ‘being a part of some event’. Hence, participating policies are the ones which provide not only the Sum Assured but also allow you to participate in the profit of the company. Sum Assured is the amount that the customer receives on the completion of the policy term or upon the death of the person, whichever is earlier, who is insured under that policy.

Why customer is made a part of company’s profits?

Premiums paid by the customers of participating polices are pooled together to form a participating fund. This fund is then invested by the insurance company. Based on the returns of that fund, the company pays out proportionate share of the profit to the policyholders. However, this profit is not guaranteed by the insurance company. Hence, participating policies are those which have both the guaranteed (sum assured) and non guaranteed benefits.

Non- participating policies pay you the guaranteed benefit when the policy term completes, i.e., the maturity benefit or the death benefit in case of the death of the life insured. The customer does not participate in the profits of the company and hence is not paid out bonuses or share in profit.

There is always an argument whether you should buy participating policy or non- participating one. There is never a right or wrong answer to this. Whenever you plan to buy an insurance product, it is very important to understand your needs and an answer to the question: ‘Why do I want to buy this policy?’

Always remember, insurance products are there for your personal needs. You should self introspect: why do you need, when do you need the returns and hence what you should buy.

 

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