What Does ‘Non Participating’ Mean?
What is a non participating life insurance policy? Those looking for some extra in dividends from their relationship with their life insurance company could go for a participating policy. You may see life insurance options divided into “participating” and “non participating”. There are advantages and disadvantages, as with any type of life insurance.
What Is a Non Participating Whole Life policy?
As part of a whole life insurance plan, policyholders are able to ‘participate’ by receiving dividend earnings from their life insurance company. A non-participating policy refers to one which does not allow the policyholder to receive dividends from their life insurance plans when a successful year for the insurance company results in a surplus.
Taking part in dividend programs requires a whole life plan, either on an independently purchased or group life insurance plan. Much like stock, whole life policyholders have a stake in the company, which allows the possibility for a dividend payment. This is because a whole life plan has a redeemable cash value.
Insurance companies retain funds in investments – so when there is a return on investment, participating policyholders are able to share in the profits in the form a dividend.
What are the key differences?
Participating plans that pay out dividends are given a tax break because it’s considered a ‘return of premium’ to get a surplus payment – it is not taxable income. Term life insurance does not have monetary value upon cash in; therefore no dividend would be paid by the insurance company on a term life policy.
Whole life policies can be non participating; meaning, not every plan worth cash value will pay dividends throughout its history.
Does a Participating Policy Have Higher Premiums?
Yes. Whole life non participating policy premiums are often lower. One benefit of non-participating is that budgeting is easy – premiums stay consistent, whereas participating plans vary based on the dividends and successes of the company.
Should I Get a Non-Participating Insurance Policy?
There are true advantages to both participating and non participating. What will work best for you depends on the type of premium you’d like to pay and the kind of long-term investment you’d like to make in your life insurance policy. We can look at your individual situation and determine whether or not a non-participating policy is right for you – get in touch and let’s explore solutions together. We know the differences between both types of policies and can lead you in the right direction.