Participating and Non-Participating Life Insurance

Participating Life Insurance policies are typically Whole Life insurance contracts. Participating means that policy holder receives a portion of insurance company’s earnings via dividend.

The dividend received by the policyholder can be used in several different ways. It can be applied to the insurance policy's premium payment. The dividend can be kept with the insurance as a deposit in order to generate higher interest and increase death benefit. Finally, the policyholder can simply receive the dividend payment in cash, much like a dividend payment on a stock.

Non-participating life insurance, typically Universal Life insurance contract will generate cash value through the basket of mutual funds and/or stock investments. Policy holder has choice of investments held in their portfolio and can change them over time. Most insurance companies will provide a robust line up of investment products to choose from. Non-participating policy offers more flexibility, but it requires more efforts managing the portfolio.

One of the key difference between Participating and Non-participating Life Insurance is the rate guarantee. Participating contracts will set the guaranteed dividend rate upfront and revise it periodically, usually annually. Most of them will include the guaranteed dividend clause with specific dividend minimum guaranteed by the insurance company. Non-participating policy’s dividends are not guaranteed and revised more frequently, sometimes even monthly. 

Participating policies have higher premiums because insurance companies base their calculations for dividends on more conservative projections. They would account for higher than current operating costs and lower rate of return. The actual dividend will be almost always higher than projections used. Depending on the length of policy, participating insurance can be a better value for your money as it provides higher returns over the long period of time.

When choosing the life insurance many factors have to be considered. Leave it to professionals with many years of experience and thorough knowledge of the market. Contact us for a free consultation!