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

A participating policy is one that allows policyholders to receive dividends from the insurance company. These dividends are typically distributed when the insurer has surplus earnings beyond what is needed to cover claims and administrative expenses. Policyholders of participating policies often benefit from these dividends, which can be used in various ways, such as reducing premiums, purchasing additional coverage, or being received as cash.

In contrast, non-participating policies do not pay dividends, meaning that policyholders do not share in the insurer's surplus or earnings. This distinction is important because it affects the potential financial benefits that policyholders may experience over the life of the policy. Non-participating policies can be simpler and sometimes have lower premiums, but they do not offer the advantage of dividends that could enhance the policy’s value.

Understanding this difference is crucial for consumers when deciding between various life insurance products, as it can impact both the cost and potential benefits of coverage.