Participating Life Insurance Policy

Are you looking for a way to keep your family financially safe for the future? If yes, a life insurance product with a participating policy will offer regular dividends. Participating in life insurance policies provides the benefit of participating in policy profits through dividends or bonuses.

Participating Life Insurance Policy

The bonus amount is planned based on the amount assured and the bonus rate, provided that payouts increase as profits increase. In this article, you will learn all you need to know about a participating life insurance policy.

What is a Participating Life Insurance Policy?

Participating life insurance is a type of whole life insurance policy that pays dividends to policyholders when the insurer has extra funds. It is also known as dividend-paying life insurance. The insurer may have additional funds due to good investment performance, fewer payouts than expected, or reduced expenses.

At the end of the business year, the insurer’s board of directors may choose to allocate part of the surplus to policyholders as dividends. However, dividends are not certain when buying a participating life insurance policy.

How Does It Work?

The cash value of a participating life insurance policy rises at a fixed rate set by your insurer. It is typically in the range of 1% to 3.5%, according to Quotacy, a brokerage firm. This sets participating life insurance apart from other permanent policies that don’t promise returns.

Once you have gathered enough cash value, you can begin to take out loans against your policy. And when you are gone (when you die), your beneficiaries will typically get a payout that is not subject to income tax.

Cost of a Participating Life Insurance Policy

Participating in life insurance is more expensive than standard whole life insurance. Moreso, a term life insurance due to the potential for annual investment earnings. Policyholders can potentially save money in the long term through dividends and cash value, but again, this is not certain. There are a lot of variables that control the cost of your policy. The lists below are a few of the main factors, and they are as follows:

  • Age: Generally, when you are younger, insurance is always less expensive.
  • Health: Chronic disease, lifestyle, and family history can increase the cost.
  • Gender: On average, women live longer than men, so insurance may cost less for women.
  • Occupation: If you have a risky job, your insurance costs can be higher.

The higher cost of participating in life insurance makes it well-suited for those looking for estate planning solutions in addition to standard life insurance.

Types of Participating Life Insurance Policies

Life insurance policyholders who participate in the plan have a lot of options when it comes to how their dividends are issued. But before we dig into the dividend options, it is important to know how the dividends are calculated.

Annually, the insurance provider calculates the dividend rate by considering some factors, including expenses, investment earnings, mortality (which affects the amount of benefits paid), and taxes. If the investment earnings exceed the benefits, expenses, and taxes, participating policyholders may get a dividend.

There are four (4) main dividend payment options for participating life insurance products, and they are as follows:

Premium Reduction:

Policyholders can also choose to use their dividends to pay their life insurance premiums, either in part or in full. In this case, the dividend would reduce the amount of money owed every year to the insurance provider. However, typically, dividends can only be used to reduce insurance premiums if the policyholder has a yearly premium payment plan.

On Deposit/cash Accumulation:

In this scenario, the life insurance company will simply deposit any dividends into an interest-earning account, parallel to a savings account. The interest rate is set annually by the insurance provider, and policyholders can access their dividends whenever they need them.

Paid in Cash:

Policyholders have the option to get their dividends as a direct cash payment, which is supplied on an annual basis by the insurance provider. It is important to know that if you choose to receive your dividends in cash, the money may be subject to income tax.

Premium Reduction:

With paid-up additions, policyholders can make use of their dividends to buy additional coverage that is added to their existing policy. This is an excessive choice for those who want to increase their insurance coverage and future dividends.


A participating life insurance policy is an insurance contract that pays dividends to the policyholder. Dividends come from the supplying insurance company’s profits and are typically paid out on an annual basis over the life of the policy.

A lot of factors should be considered to determine whether a participating life policy is right for you. In a lot of cases, they may be more expensive at first than non-participating policies. Nonetheless, getting dividends helps a lot of holders of participating policies pay their premiums or build savings in the policy for later use.