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What is the Difference Between Participating and Non-Participating Life Insurance Policy?

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21-07-2022 |

Life insurance is one of the financial instruments to secure your family's future in the event of your unexpected demise. Insurers offer different types of insurance plans to enhance financial benefits based on individual needs. Life insurance policies are differentiated based on certain features and factors.

One such factor is sharing profits earned by the insurance providers with the policyholders. And that introduces the concept of participating and non-participating life insurance policies. Here is a detail about their differences to help you make the right choice.



What is a Participating Life Insurance Plan?

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A participating insurance policy is a life insurance plan that allows you to participate in the insurance company's profits. It provides additional financial benefits apart from the sum assured ascertained in participating plans.

Life insurance companies earn profits like any other company in varied industries. The insurer provides these profits to the life assured based on the choice of life insurance plans.

The profits earned by the insurance provider are offered to the life assured in the form of dividends or bonuses2. It is generally provided to the policyholders on an annual basis. However, the payouts of the participating insurance plans are based on the performance and profits earned in that particular financial year.

Therefore, if you have purchased a participating policy, you can utilise the benefits in the following ways:

  • Generate additional returns from the life insurance policy as and when earned by the insurance provider.

  • You can utilise the bonuses2 to pay the annual premium.

  • You can also deposit the bonuses2 to earn interest regularly.

It is important to note that these bonuses2 or dividends are in addition to the maturity and death benefits provided in the life insurance policy. So, for example, if your insurance provider offers a participating ULIP plan, the bonuses2 are in addition to the sum assured, and the ULIP returns.



What is a Non-Participating Life Insurance Policy?

A non-participating life insurance policy is a plan that does not provide any bonuses2 or dividend payouts based on the insurer's profits. Therefore, the policyholder in such plans will not participate or have an interest in the insurance provider's profits earned.

Now that we have understood the meaning of participating and non-participating insurance plans let us discuss the differences.

Factor

Participating insurance Plan

Non-participating insurance plan

Share of profit

Insurers share the profits earned with the policyholder.

Policyholders do not receive any share of the profits earned by the insurance provider.

Guaranteed1 and non-guaranteed1 financial benefits

Insurers provide guaranteed1 death and maturity benefits based on the type of life insurance policy. In addition, it provides non-guaranteed1 bonuses2 and dividends based on the insurance company's performance.

Insurers provide the guaranteed1 sum assured and the maturity benefits, if any, based on the type of life insurance plan chosen by the policyholder.

Payment mode

Insurers provide dividends or bonuses2 to the applicable policyholders on an annual basis.

The bonus2 payments do not apply to the policyholders.

Cost

Participating life insurance plans are costlier compared to non-participating life insurance plans.

The non-participating life insurance plan is available at an affordable premium rate.



Who Should Purchase the Participating and Non-Participating Life Insurance Plans?

The choice of purchasing the type of life insurance policy solely depends on your personal financial needs and affordability.

If you are the sole earning member of your family and securing your family's financial future is your sole objective, a non-participating life insurance plan will suffice for your financial needs.

A participating life insurance plan is ideal if your financial objective is to secure your family while earning an additional income. However, it is available at a slightly higher cost than non-participating life insurance plans. Although it is expensive, the benefits from a participating life insurance plan are on the greater side when your insurance provider is performing well in the industry.

If you are looking for a safe option, non-participating plans are a better choice. However, a participating life insurance plan such as the ULIP plan can provide flexible features such as choosing the fund to invest in and the option to switch between them during an economic downturn that will affect the market conditions negatively.

When you purchase our Tata AIA life insurance plans, you can get the right expert guidance to choose the right life insurance options and the additional benefits based on your individual family's financial commitments and needs. In addition, our life insurance company customer service executive team can help you with any queries if you plan to purchase a life insurance plan online or offline.



Conclusion

A participating life insurance plan provides additional financial benefits in the form of bonuses2 or dividends from the profits earned by your life insurance provider. The payments are based on the life insurance company's performance and are paid to the policyholders annually. It is in addition to the death and maturity benefits based on the type of life insurance policy.

On the other hand, a non-participating life insurance plan does not provide a bonus2 or dividend payout to the policyholder. However, it is less expensive than the participating life insurance plan. Therefore, the choice of the type of life insurance policy should be based on individual needs and affordability.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

What is a par fund?

The premium amount policyholders pay on participating life insurance plans is pooled together to form a par fund. The fund is invested in different financial instruments to pay the respective benefits to the policyholders and manage the fund. 

Are participating life insurance plans expensive?

Participating life insurance plans are expensive compared to non-participating life insurance plans. However, it is worth the investment because the policyholders will receive bonuses2 or dividend payouts annually based on the insurance company's performance.

Participating and non-participating life insurance plan, which is better?

The choice of life insurance plan between the participating and the non-participating life insurance plan will depend on the individual's personal financial interests and needs. While the participating life insurance plans are slightly costlier, they provide annual bonuses2 or dividends based on the company's performance. On the other hand, non-participating insurance plans are less expensive and provide the necessary sum assured and guaranteed1 maturity benefits.

L&C/Advt/2022/Jul/1636

Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry

  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.

    • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

    • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

    • Past performance is not indicative of future performance.

    • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

    • Please make your own independent decision after consulting your financial or other professional advisor.