What are the differences between participating and non-participating life insurance policies?
While there is a relatively better understanding now regarding term insurance policies, the wealth accumulation products can be a bit confusing for the new customers.
By Anup Seth, Chief Distribution Officer, Edelweiss Tokio Life Insurance
India’s life insurance story has reached an inflection point. An instrument that had severely low awareness until recently is slowly finding popularity among a larger population as the need for financial risk management has become glaringly clear. A new breed of life insurance customers has come to the fore – they are younger, more savvy with financial planning and expect simpler solutions to address their needs. As the insurance customer undergoes change, the need for spreading awareness regarding life insurance solutions has never been greater.
While there is a relatively better understanding now regarding term insurance policies, the wealth accumulation products can be a bit confusing for the new customers. It is with this context, that I felt it critical to revisit a more basic conversation about life insurance products – what are participating and non-participating life insurance policies? What is the difference between these two product categories? Let’s find out.
Participating Life Insurance Plans
A participating life insurance policy, known as a par product in industry parlance, allows a customer to participate in the profits of a life insurance company. To explain simply, a life insurance company, like most companies, earns profits over a course of time. Participating policies allows customers to benefit from annual profits made by the company. Typically, these benefits are paid to the customers on an annual basis in the form of bonus or dividends.
These benefits are separate from the maturity benefits guaranteed by the life insurance policy. Some companies pay the accumulated bonuses or dividends and terminal bonuses at maturity of such policies. In years that the customers don’t require funds, they can let the bonus accumulate with the insurance company.