Participating vs. Non-Participating Life Insurance: What’s the Difference?

Trying to make sense of insurance jargon can feel overwhelming, especially when you're faced with terms like participating and non-participating life insurance. At first, they might sound overly technical or confusing. But in reality, they simply describe whether or not your life insurance policy gives you a part of the insurance company’s profits. In this blog, learn everything about participating vs. non-participating life insurance and help you understand which one aligns better with your financial goals.

Trying to make sense of insurance jargon can feel overwhelming, especially when you're...

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What is Auto Insurance

What is Participating Life Insurance?
What is Non-Participating Life Insurance?
Participating vs. Non-Participating Life Insurance
Real-Life Example Scenario

About the ACKO Life Flexi Term Plan
Advantages & Disadvantages of Participating Life Insurance
Advantages & Disadvantages of Non-Participating Life Insurance
How to Decide Which One Works Best For You?
Conclusion
FAQs

What is Participating Life Insurance?

Participating life insurance is a type of life insurance policy that not only provides policyholders with the death benefit, but also allows them to receive a portion of the insurance company’s profits in the form of bonuses or dividends. These payments are usually not guaranteed and will depend on the insurance company's financial performance.

How does it work?

You pay regular premiums as per your policy terms.
The insurance company pools your premium with others and invests in various instruments like bonds, stocks, or government securities.
If the insurance company performs well financially, a portion of this is distributed to policyholders.
These profits are then shared with you in the form of bonuses, either annually or at the end of the policy period.
On maturity or in the event of a claim, you receive the guaranteed sum assured plus any accumulated bonuses.

What is Non-Participating Life Insurance?

Non-participating life insurance is a straightforward policy where the benefits are fixed and guaranteed, but you don’t receive a portion of the insurance company’s profits. These plans give you predictability when it comes to how much you will get in returns.

How does it work?

You pay a fixed premium for the chosen policy term.
The insurance company promises a fixed sum assured, which is paid out either upon the death of the insured person or at maturity, depending on the type of policy you have.
You do not receive any bonuses or dividends, regardless of how well the insurance company performs.
The final payout or claim amount is the guaranteed amount you get with no additions.

Participating vs. Non-Participating Life Insurance

One of the simplest ways to understand the main difference between the two lies in their names. In participating policies, policyholders "participate" in the insurance company's profits or investment gains, and on the other hand, in non-participating policies, policyholders "do not participate" in any profits or gains made by the insurance company. The term “non-participating” reflects this absence of profit sharing.

Here's a more detailed comparison of the two:

	Participating Insurance	Non-participating Insurance

Meaning	Policies that allow you to receive a part of the insurer's profits	Policies in which you do not receive a part of the insurer's profits
Profit sharing	Yes, in the form of bonuses and dividends	No profit sharing is involved
Returns	Depends on the insurance company’s performance	Fixed returns regardless of how the company performs
Risk level	Moderate risk, as it depends on market performance	Low risk as the returns are guaranteed
Transparency	Can be less predictable and transparent	Very clear and straightforward
Ideal for	Individuals who want life cover plus higher potential returns	Individuals who prefer fixed coverage benefits

Real-Life Example Scenario

Example 1

Amit, 32, buys a participating endowment life insurance policy with a sum assured of ₹20 lakhs. He pays an annual premium of ₹35,000 for 20 years.

Over the years, the insurance company has performed well and has declared annual bonuses.
Amit receives reversionary bonuses that are added to his policy every year.
At the end of 20 years, his policy has accumulated bonuses worth ₹6 lakhs.
When the policy matures, he receives ₹26 lakhs - ₹20 lakhs sum assured + ₹6 lakhs in bonuses
Amit benefits from life cover and gets a share in the insurer’s profits, giving him a higher final return.

Example 2

Neha, 30, chooses a non-participating term insurance plan with a sum assured of ₹50 lakhs. She pays an annual premium of ₹7,000 for 25 years.

This policy doesn’t offer any bonuses, profits, or returns during the policy period.
If Neha passes away during the policy period, her nominee will receive ₹50 lakhs as a fixed death benefit.

About the ACKO Life Flexi Term Plan

The ACKO Life Flexi Term Plan is a non-linked, non-participating term plan focused on pure protection. It is a highly flexible term life insurance plan that offers all-inclusive coverage for you and ensures financial protection for your loved ones.
With this plan, you can:

Customise your coverage amount
Change your policy term, which means you can extend or shorten it based on your life stage and commitments.
Modify how your nominees get paid
Modify and add nominees as your family grows
Create your will digitally in minutes to safeguard your assets and your legacy
Save up to ₹54,600* on your taxes
Add additional coverage, such as Accidental death cover, Critical illness cover and Accidental permanent disability cover.

Advantages & Disadvantages of Participating Life Insurance

The trick to knowing if participating life insurance will work best for you depends on your understanding of it. That's why it's important to learn about its advantages and disadvantages in order to make an informed choice.

Potential to earn bonuses or dividends

Profit sharing helps build long-term wealth

Offers both life cover and a savings component

Suitable for individuals with long-term financial goals

Bonuses are not guaranteed and may vary each year

Premiums are typically higher than non-participating policies

Returns will depend on the insurance company’s performance

Can be more complex to understand and track

Advantages & Disadvantages of Non-Participating Life Insurance

Similarly, you need to know about the various advantages and disadvantages of non-participating insurance, too. Let's take a quick look.

Guaranteed benefits with no change in returns

Lower premiums compared to participating policies

It’s simple, clear, and easy to understand

Fixed returns make financial planning easier

No bonus or profit sharing from the insurance company

Limited possibilities of wealth growth

Might not keep up with inflation in the long run

Less flexibility as compared to participating policy

How to Decide Which One Works Best For You?

Choosing which policy works best for you comes down to considering the following:

If you value guaranteed outcomes and predictable returns, a non-participating policy might be the right choice.
If you're open to some unpredictability with the chance of higher returns, a participating plan could be a better fit for your goals.
If you're looking for investment-linked growth along with life cover, participating life insurance can be a suitable option.
If your priority is affordability and simplicity, non-participating plans offer straight-to-the-point, plain and simple coverage.

Conclusion

Both participating and non-participating life insurance policies serve different financial purposes. While one offers the chance to grow your money through profit sharing, the other one provides fixed, no-surprise benefits. The right choice will, of course, depend on your goals, comfort with risk, and need for either growth or guaranteed security.

Frequently Asked Questions

What is the main difference between participating and non-participating life insurance?

Participating policies share profits with policyholders through bonuses, while non-participating policies offer fixed, guaranteed benefits without any profit sharing.

Can I switch from a participating to a non-participating plan later?

No. Once the policy is issued to you, the type of policy can’t be changed. You would need to surrender the policy and purchase a new one.

Why is the participating life insurance premium higher than the non-participating one?

It is higher because participating plans usually have higher premiums as they include a savings or investment component in addition to life cover.

Will I lose money if I cancel a participating policy early?

Yes. Participating policies often have a surrender value lower than the total premiums paid, especially in the initial years. Plus, bonuses usually take time to accumulate and may not be payable at all if surrendered early.

Do non-participating policies offer any returns at all?

Non-participating endowment or whole life plans do provide guaranteed maturity benefits and death benefits. However, you won’t receive any bonuses or extra benefits from the insurance company's profits.

What is a par policy and a non-par policy?

“Par” and “non-par” are simply short forms for participating and non-participating life insurance policies. The meanings are exactly the same; it's just a commonly used shorthand in the insurance world.

Written by Neviya Laishram

1.7K Linkedin Followers

Reviewed by Vaibhav Kumar Kaushik

A senior editor with years of expertise, she fine-tunes content that connects, converts, and builds trust. She transforms heavy life insurance concepts into clear, aha-moment reads. Writing is her passion, and thinking ahead is second nature. When not wrangling words, she’s crushing game levels because every challenge is a puzzle waiting to be solved.