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Features
Ref. No. KLI/22-23/E-BB/492
The difference between participating and non-participating policy essentially lies in their main benefit. While participating policies offer potential dividends from company profits, non-participating policies provide lower premiums with predictable payouts. Understanding the par and non-par product differences helps you choose between wealth-building potential and straightforward coverage based on your financial goals.
Life insurance is critical to financial planning and protects loved ones from life’s unexpected challenges. When exploring life insurance options, you will encounter two distinct choices: participating and non-participating insurance. Understanding the difference between participating and non-participating policy in detail can help you make informed decisions.
Participating policies offer the potential to receive dividends from the insurance company’s profits. As these policies offer the potential for wealth creation, they come at a higher premium. On the other hand, non-participating life insurance policies are more affordable as they do not consist of the profit-sharing option. Rather, they have a fixed payout structure that does not depend on whether the insurer makes profits.
Participating policies, also known as with-profit or dividend-paying policies, offer a unique dynamic between the policyholder and the insurance company. The defining feature of participating policies is the potential for policyholders to receive dividends. These dividends are a share of the insurer’s profits and are distributed among policyholders based on the company’s financial performance.
As the name suggests, non-participating life insurance policies do not allow the policyholder to participate in the insurer’s profits. They follow a more straightforward structure where coverage amount is provided in exchange for premiums if the insured passes away. Due to pure life insurance coverage, these policies are more affordable. Moreover, they offer a predetermined and fixed payout irrespective of the insurer’s profitability. This predictability makes budgeting for insurance costs easier for policyholders.
To make the right decision, you must understand par and non-par products difference. Let us take a closer look at the features that distinguish these two policies:
| Feature | Participating Policy | Non-participating Policy |
|---|---|---|
| Profit Sharing | Yes (through bonuses/dividends) | No |
| Guaranteed Benefits | Yes + Potential Bonus/Dividends | Yes (fixed payout) |
| Cost | Higher premiums | Lower premiums |
| Predictability | Less predictable (relies on company performance) | More predictable (fixed payout) |
Making the optimal choice between participating vs non-participating life insurance requires looking beyond their basic features to understand how they suit your specific circumstances.
Sure, participating policies offer the allure of potential dividend earnings alongside protection, making them attractive as hybrid financial instruments. However, you should also consider that they demand higher premiums and a longer-term commitment. Generally, younger individuals find the long-term wealth-building potential of participating policies more appealing.
Non-participating policies, on the other hand, are more straightforward and predictable. Thus, they can better serve those seeking pure protection with clear budget parameters. Ultimately, the most effective policy is one that protects your loved ones and helps you achieve your future financial goals.
1
Risk level is a significant difference between participating and non-participating policy. Participating policies may carry slightly more risk for the policyholder since dividends are dependent on the insurer’s financial performance. However, participating policies also offer the potential for higher returns if the insurance company performs well.
2
Yes, dividends in participating policies can fluctuate based on various factors, including the insurer’s investment performance, mortality experience, and operating expenses.
3
The tax treatment of dividends in participating policies depends on the policyholder’s specific circumstances and jurisdiction. In some cases, dividends may be tax-free, while in others, they may be subject to taxation.
4
The difference between participating and non-participating policy is typically labeled as such in the policy documentation. Additionally, insurance agents or representatives can provide information about the type of policy being offered.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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