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Participating vs. Non-Participating Life Insurance

Participating vs. Non-Participating Life Insurance Policies: What’s the Difference?

When it comes to purchasing a life insurance policy, there’s certainly a lot of details to go over before choosing the right plan for you. That’s why it can help immensely to have a team of reliable financial advisors at your side. If you’re currently looking at life insurance plans, you’ll have to decide between a non-participating or participating life insurance plan, so the team from Desjardins Financial Security Independent Network (DFSIN) Toronto West has collected some important information about them here.

What Exactly is an Ontario Participating Life Insurance Plan?

One of the key differences between a participating life insurance policy and traditional life insurance plans is that it pays out dividends. Typically, a participating life insurance policy will pay out dividends on an annual basis. These funds come from profits generated by the insurance company where the plan was purchased. In fact, some participating policies will even have a guaranteed amount you’ll receive that’s determined when you purchase it.

You can use these funds for a variety of things including:

  • Using the dividends as a deposit on your insurance policy to generate growth
  • Receiving a cash payout on your participating policy to use as you see fit.
  • Applying this money to your policy’s premium payment to lessen your financial burden.

Participating vs. Non-Participating Policies

When selecting the right policy for you, there are a few things to keep in mind. Firstly, non-participating premiums are often lower, they also have less risk associated with them. However, over the long term, participating policies can often cost less than non-participating policies because your dividend will often increase as your policy’s cash value does.

Those interested in earning a regular profit from their life insurance policy will find that a participating one will prove advantageous. But if you’re solely interested in providing for loved ones after your gone and paying lower premiums, a non-participating policy will often serve you best.

Other things to consider when comparing the two different types include:

  • Flexibility: When compared to participating plans, non-participating plans can be a bit more rigid in terms of flexibility. Upon issuance of a non-participating policy, your benefits are fixed, meaning the amount you can claim is already set in stone. Not true with a participating policy, which enables you to switch and redirect funds as you see fit.
  • Payment Frequency & Guarantee: This is one of the key differences between a participating and non-participating policy. Those with participating plans receive bonuses or dividends annually and the payout’s guaranteed. However, the amount you’ll receive is dependent upon the performance of the participating company.
  • Risks & Returns: If your insurance company didn’t have a good year or showed slow growth in a particular quarter, those with non-participating policies will be unaffected. This means you’ll never need to worry about having to pay a higher premium. However, with a participating policy, your success is tied to the ups and downs of the company, which can provide big payoffs but aren’t always the most reliable due to the higher risk factor.
  • Benefits: A participating policy will provide guaranteed returns in addition to bonuses that weren’t guaranteed. This means that policyholders will be able to enjoy higher returns as well as increased wealth.

What Specific Types of Policies are Participating

Often, whole life insurance policies are the only type to pay bonuses at the end of each term and are thus considered participating. This often includes both individual and traditional whole life policies, like group plans. This type of plan is participating for a number of reasons, the biggest being that for mutual life insurance companies, policyholders actually own a stake of the company. It’s a symbiotic relationship similar to owning stock in a company.

With participating policies, insurance companies take the cash under their management and invest it in low-risk ventures and fixed-income securities like treasury notes and bonds. The interest earned from these ventures is then distributed among those with participating plans with the company.

Why Term Life is Non-Participating

With term life insurance policies, owners will not own the policy for the rest of their lives, it’s more of a “rented” life insurance policy. Additionally, term life insurance boasts no cash value. Those with term life insurance policies often choose such a plan because it’s relatively inexpensive and boasts next to no risk. However, nowadays, there can be some term policies that offer small cash values, mostly ones that last until the insured reaches a pre-determined age.

Contact DFSIN Toronto West today to learn more about affordable life insurance!

Purchasing life insurance can be a big decision, so why not have a financial expert on hand to help guide you through the process? At DFSIN Toronto West, we’re committed to helping find the best plan for your needs and future financial goals.

To learn more about what we do or speak to one of our representatives, contact us online today or call (416) 695-1433.

 

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