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What is the difference between a participating and non-participating policy

What is the difference between a participating and non-participating policy

Though 20% of the world’s population resides in India, 76% of Indians above the age of 18 years have little or no awareness about financial concepts. This influences their ability to make wise investment decisions and secure their future.

No wonder then that, in 2017, Indians merely accounted for 328 million life insurance policies as per data from the Insurance Regulatory and Development Authority of India (IRDAI). A whopping 988 million Indians are left uninsured (in terms of life insurance) and still financially vulnerable in case an emergency strikes.

Understanding the importance of life insurance and its finer details is vital to recognising how it could help secure the financial future of your family. However, one would generally need to bear in mind that not all policies are the same. Life insurance policies come in all shapes and sizes and to choose one that fits like a glove is to understand the finer distinctions between these policies.

For instance, a life insurance plan might either be participative or non-participative in nature. It is vital to understand how both of these differ from each other and what their advantages are, before proceeding with your decision to buy a plan for yourself. Here are a few pointers to keep in mind:

  • Broad definitions: A participating policy, as the name suggests, allows its policyholders to share the profits that the company earns. These are shared as bonuses or dividends which makes this a policy with profits. A non-participating policy does not share any profits in the form of dividends and hence is a without profit policy.
  • Payment frequency and guarantee: Policyholders receive bonuses or dividends shared with them on a yearly basis when they are insured by a participating plan, while no such benefit is available to them under a non-participating plan from an insurer. The payout is guaranteed in the former. However, the percentage of profit shared is dependent on how the company performs in the market during the period.
  • Flexibility: A non-participating policy is rigid as compared to its counterpart. The benefits that you can claim with this policy are fixed at the time of issuing it. This makes it quite inflexible. A participative plan is just the opposite; it allows you utmost flexibility. In a market-linked policy, you can switch and redirect funds, whenever you’d like, however you’d like to.
  • Risk and Returns: Let us say your insurance company does not perform up to the mark in a certain year. If you have a non-participating policy, there is no reason to worry that you would need to pay a higher premium. Both the premium and maturity amount is protected from market fluctuations thus providing security. This is unlike participating insurance policies where bonuses in the future are more likely to be market-linked and hence uncertain and less secure.
  • Benefits: A participating policy provides both guaranteed benefits as well those which do not have a guarantee. For example, the sum assured payable upon either policy maturity or in the event of the death of the policyholder is a guaranteed benefit. Cash dividends and bonuses fall in the category of benefits without a guarantee that a person with participating insurance can avail. However, those with non-participative insurance can only avail benefits that are guaranteed.

All said and done, a participating policy such as a unit-linked insurance plan (ULIP) is a win-win investment for the future. You can save tax on the amount invested, the interest earned as well as the maturity amount upon withdrawal. You can enjoy higher returns and take advantage of market conditions to increase your wealth. Apart from this you also get the benefit of life insurance, the cash value of which is protected by the company assets as well as guidelines laid out by the Insurance Regulatory authority of India.

The Invest 4G plan from Canara HSBC Oriental Bank of Commerce is a participating plan that allows you to choose from 7 funds and 4 portfolio strategies as per your risk-taking ability. It gives you the flexibility to switch or redirect between funds depending on market conditions and make partial withdrawals in order to meet an emergency in the family. Loyalty additions and wealth boosters further make it more attractive. So grow your money, as you secure the future of your loved ones with a ULIP that gives a fillip to your life savings and helps you realise your dreams.

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