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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?
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.
