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Features
Ref. No. KLI/22-23/E-BB/492
Participating plans offer policyholders a sense of sharing in the company's profits, while with non-participating plans, you are only given predetermined benefits.
Participating policies offer the potential to receive dividends from the insurance company’s profits. On the other hand, non-participating life insurance policies typically have fixed premiums that do not fluctuate based on the insurer’s financial performance. This predictability makes budgeting for insurance costs easier for policyholders.
Insurance is critical to financial planning, providing individuals with a safety net against unforeseen circumstances. Within the realm of life insurance, two key terms often surface - participating and non-participating policies. Understanding the difference between these two can empower policyholders to make informed decisions about their financial future.
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.
Non-participating policies, on the other hand, follow a more straightforward structure. These policies do not provide policyholders with a share in the insurer’s profits or surplus. Instead, the benefits and premiums are predetermined and fixed.
To make the right decision, you must understand how participating policies differ from non-participating policies. Let us take a closer look at these subtle differences:
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) |
As a policyholder, a participating policy allows you to share the profits of the insurance company. Let us take a look at the features of these participating policies:
One of the primary attractions of participating policies is the potential to receive dividends. These are not guaranteed and depend on the insurance company’s profitability.
Participating policies have this unique feature of sharing the profits generated by the insurance company’s investments and operations with the policyholders.
Policyholders have a say in the company’s decisions, often exercising voting rights during annual meetings. This level of involvement can foster a sense of transparency and trust.
Participating policies typically accumulate cash value over time, which can be withdrawn or borrowed against.
Also known as without-profit policies, non-participating policies do not offer profit-sharing to the policyholders. They also do not pay dividends to policyholders. A non-participating plan offers the following features:
Non-participating policies offer a clear-cut structure with fixed premiums and benefits. Policyholders know exactly what to expect, providing a sense of stability.
Unlike participating policies, non-participating policies do not distribute dividends. Policyholders are not directly affected by the insurer’s financial performance.
Policyholders can plan their financial future with more certainty as the terms of the policy remain constant throughout its duration.
Non-participating policies are often simpler to understand, making them an attractive option for individuals who prefer a straightforward approach to life insurance.
Participating and non-participating policies cater to different preferences and financial goals. Whether one opts for potential dividends and a stake in the insurer’s profits or prefers a more straightforward and predictable arrangement, understanding the nuances of these policies is crucial. It is advisable to consult with a financial advisor to align your insurance choices with your overall financial strategy, ensuring a secure and well-informed future.
1
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 can vary depending on the jurisdiction and the specific circumstances of the policyholder. In some cases, dividends may be tax-free, while in others, they may be subject to taxation.
4
Participating and non-participating policies are 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.
