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Difference Between Participating And Non-Participating Insurance

By Finserv MARKETS - Feb 28,2019
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Participating Vs Non Participating Life Insurance

If you are familiar with life insurance, you may already be aware that there are many types of life insurance policies such as term insurance, whole life policy, unit linked insurance plans etc. Participating and non-participating insurance is a broad classification of life insurance policies based on their participation in the company profits. Participating policies pay out dividends to the policyholders or in other words, the policyholders “participate” in the company profits which is paid in the form of dividends. Participating policies not only provide life insurance protection but also offers returns. For example, ULIP plans like Bajaj Allianz Future Gain or Bajaj Allianz Goal Assure, pay out bonuses or dividends which is why they are classified under participating policies.

On the other hand, non-participating life insurance policies do not pay out any dividends and hence the policyholders do not get to participate in the company profits. A major benefit of non-participating policies is that the premiums are relatively lower than participating policies. For example, term insurance or permanent life insurance policy is a non-participating policy as it doesn’t pay out any dividends.

Participating Insurance vs Non-Participating Insurance

Before you make a choice, it is essential that you understand the difference between participating and non-participating insurance. The following table compares the two policies based on certain parameters. Here, take a look.

PARTICIPATING POLICY NON-PARTICIPATING POLICY
Definition With this policy, you (the policyholder) can share the profits earned by the insurance company.

Here, the profits earned are shared in the form of bonuses or dividend.

This policy is also known as with-profit policy.

In this policy, you receive no portion of the profits or dividends earned by the company.

This policy is also known as without-profit or non-par policy.

Payout The bonuses or dividends earned are generally paid out to you (the policyholder) on a yearly basis. Like we mentioned earlier, there are no bonuses or dividends offered under non-participating policy.
Payout Guarantee The percentage of the bonus offered to you is not certain. It is dependent on the market performance of the insurance company. You receive no payouts in non-participating policy as the profits earned by the company are not shared.
Advantages The key benefit of the participating policy is that it provides protection as well as returns in the form of bonuses/dividends. The premiums charged are relatively less compared to participating policy.

Apart from these basic differences, below are some key points to understand about participating vs non participating insurance.

  • Guaranteed vs Non-Guaranteed Benefits
  • Secured vs Unsecured Returns

Guaranteed vs Non-Guaranteed Benefits

A non-participating policy offers only guaranteed benefits. On the other hand, participating policies offer both guaranteed as well as non-guaranteed benefits. The sum assured payable upon maturity or death of the policyholder is the guaranteed benefit. Alternatively, the non-guaranteed benefit includes cash dividends and bonuses.

Secured vs Unsecured Returns

A non-participating policy is somewhat secured. However, participating policies are less secure in the sense that future bonuses are not guaranteed. Therefore, in non-participating policies, you do not have to worry about paying a higher premium if the insurance company did not fare well in a particular year. In non-participating policies, both the premium and benefit amount is safeguarded from any fluctuations in the economy.

Why a Participating Policy may be the Best?

For many, participating insurance plans like ULIPs represents a very safe and stable investment vehicle that offers dual benefits of insurance and returns. The returns received from unit linked insurance plans are responsive to market interest rates. Moreover, there are also ULIP tax benefits which fall under the Exempt-Exempt-Exempt (EEE) tax structure i.e. exempted at investment stage, exempted at accrual and exempted at withdrawal. The cash value in your life insurance policy is further protected both by the total assets of the life insurance company, as well as the insurance regulator IRDA’s guidelines. If you are looking for a stable investment with good returns, tax advantages as well as life insurance benefits, a participating policy like ULIP is the best choice. You can buy a unit linked insurance plan online with Finserv MARKETS to enjoy all of these benefits.

Participating policies exists with a relatively insignificant risk while non-participating life insurance policies are more secured as they offer only guaranteed benefits. However, there are safe and stable participating policies such as unit linked insurance plans. You can enjoy both high ULIP returns and tax benefits with such an investment.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522