Life insurance is an important part of financial planning as it helps to protect you and your loved ones in the event of an untimely death. It provides a financial cushion for your family and allows them to maintain their standard of living, pay off debts, cover funeral costs and more.
With life insurance, you can rest easy knowing your family will be taken care of if something were to happen to you. There are two main types of life insurance: participating and non-participating. In this article, we will discuss the differences between these two types of life insurance.
What is a participating life insurance policy?
Participating life insurance is a type of whole-life policy that provides financial protection for the policyholder throughout their life. It allows the policyholder to share in the profits of the insurance company, receiving dividends as their share. This type of policy is beneficial to policyholders because it also offers an investment opportunity that can grow over time.
The premiums for participating life insurance policies are typically higher than other types of policies, but the rewards can be substantial. With participating life insurance, policyholders can benefit from the financial security of life insurance coverage, as well as the potential to receive dividends from the insurance company’s profits.
What is a non-participating life insurance policy?
Non-participating life insurance is a type of life insurance policy that does not provide the policyholder with any dividends or other financial benefits from the insurance company. It is also known as “term life” insurance because it is only designed to provide protection for a set period of time.
The policyholder pays a monthly premium to the insurance company and in return, the company will pay out a lump sum to their beneficiaries if the policyholder passes away during the term of the policy. The policyholder does not have any right to the profits generated by the insurance company and will not receive any financial benefit from the policy.
How are both the policies different?
Differences in coverage
One of the main differences between participating and non-participating life insurance policies is the amount of coverage they provide. Participating life insurance policies typically provide more coverage than non-participating life insurance policies. This is because participating life insurance policies are designed to last for the entire life of the policyholder, whereas non-participating life insurance policies are designed for a specific period of time.
Differences in cost
Another difference between participating and non-participating life insurance policies is the cost. Participating life insurance policies typically cost more than non-participating life insurance policies. This is because participating life insurance policies provide more coverage, and they also give the policyholder the opportunity to share in the profits of the insurance company.
Differences in dividends
The third difference between participating and non-participating life insurance policies is the dividends they pay out. Participating life insurance policies are designed to pay out dividends to the policyholder, while non-participating life insurance policies do not pay out dividends. The amount of dividends paid out by participating life insurance policies can vary, depending on the performance of the insurance company.
Differences in surrender value
Both life insurance policies have a cash value component which is known as a surrender value. This is the amount that the policyholder is entitled to receive if they decide to surrender the policy before its maturity. The surrender value of a participating life insurance policy is usually higher than the surrender value of a non-participating life insurance policy.
In conclusion, participating and non-participating life insurance policies are two very different types of life insurance policies. Both policies have their advantages and disadvantages, and it is important to choose the policy that best fits your needs and budget.
