Participating and non-participating policies

Insurance policies that have a saving component to them (endowment or money-back plans) are of two types — participating and non-participating. In participating plans (also called with-profit plans), policyholders get a share of the profits of the company — provided, the company makes profit and declares bonus. Participating plans give a benefit illustration in the policy brochure, with gross return of 4 per cent and 8 per cent and show the maturity value, but, beware, don’t take them at face value. The exercise is only for illustrative purposes. There is no way of knowing the returns beforehand as the returns depend on the bonus.

In non-participating plans (also called non-par or without-profit plans), policyholders don’t get to share profits of the insurer. But returns are guaranteed upfront by way of additions to the cover under the policy. So, the policyholder can know his returns at the time of signing up for the policy without any complex calculation. Most non-par policies in the market today give a return of 4-5 per cent.

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