Par­tic­i­pat­ing and non-par­tic­i­pat­ing poli­cies

The Hindu Business Line - - YOUR MONEY -

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 com­pany’s prof­its, 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 knows 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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