Definition
Participating Policy
A participating (par) policy is a life insurance plan whose holders share in the insurer's surplus through bonuses declared periodically.
In a par policy, premiums flow into the insurer's participating fund, and policyholders 'participate' in the divisible surplus that the appointed actuary recommends each year. Bonuses are not guaranteed; they depend on the fund's investment, mortality and expense experience.
Under IRDAI rules, at least 90% of the surplus in the par fund must be distributed to participating policyholders, with the remainder going to shareholders. Par plans suit buyers who want a blend of guarantee and upside but are comfortable with bonus rates that the insurer can vary. They contrast with non-par plans, where benefits are fixed at the outset.
Related terms
- Non-Par PolicyA non-participating (non-par) policy offers fixed, guaranteed benefits and does not share in the insurer's surplus or pay bonuses.
- Reversionary BonusA reversionary bonus is an annual bonus added to a participating life policy's sum assured that becomes payable on death or maturity.
- Terminal BonusA terminal bonus is a one-time, non-guaranteed bonus paid at maturity or on a death claim of a long-running participating policy, on top of reversionary bonuses.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.