Participating Vs Non-Participating Whole Life Insurance

While there are seven different types of whole life insurance, there
is a difference between them all. Two of these types of whole life
insurance are quite different and can impact how your life insurance
works for you.

Whole life insurance is just what the name implies—insurance for your
whole life. There is a guarantee of a minimum cash value and growth
that is included in the insurance policy. The biggest advantage of a
whole life insurance policy is a guaranteed death benefit. There is
also a guaranteed cash value, fixed and annual premiums, accessible
cash values.

The downside to whole life insurance is that the premiums are not
flexible. Also, the internal rate of return isn't very competitive
with other savings alternatives.

It's important to remember that while whole life insurance comes in
both non-participating and participating, not all insurance companies
offer these two types of whole life insurance, or any of the seven
types. It's important to check with the insurance company you are
dealing with to see if they offer the specific type of whole life
insurance that you are interested in. Likewise, if you are using an
insurance agent or broker, they can find an insurance company for you
that offer the type of whole life insurance you want.

Non participating life insurance is very inflexible. Everything is
determined when the policy is issued and after that, nothing can be
changed. The death benefits, the premiums and the cash surrender
values are all determined when you are setting up the policy. Once the
insurance company issues you the whole life insurance policy, you can
not make any alterations.

However, this also means that the insurance company is taking the risk
of the future and the performances of the policy in comparison to the
estimates made by the actuaries. (Actuaries determine risk levels of
the client.) If the future claims are underestimated by the actuary,
the insurance company must pay to make up the difference. However, if
the estimates made by the actuary are too high, then the insurance
company gets to keep the difference. This leads one to believe that
the actuaries "aim high" on their risk estimates so that the
likelihood of the insurance company needing to pay if the estimates
are too low are greatly reduced.

Participating whole life insurance means that if the estimates of the
actuary are too high, the insurance company shares the profits with
the policy holder (you)—the greater the company's success the better
the profit and surplus. It is in the best interest of the insurance
company to 'aim high' so they can retain a share of the profits with
you. However, insurance company actuaries are very skilled at their
jobs and are usually dead-on the money with their estimations.

In short, the choice between these two types of whole life insurance
is yours to make—a decision not to be made lightly as your future may
depend on it.
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