Difference Between Participating & Non-participating Whole Life Insurance
September 25, 2009 |
Featured, Whole Life
When it comes to whole life insurance, there are seven different types and each type is different from the others. Two forms of whole life insurance are very different and may have an impact on how life insurance will work for you.
Whole life insurance means just what is implied by the name, it is insurance that lasts for your whole life. It comes with a minimum cash value that is guaranteed as well as growth that gets included into the insurance policy. The greatest advantage that whole life insurance policies come with is the guaranteed death benefit. They also come with guaranteed cash values, annual and fixed premiums, and cash values that are accessible.
The drawback to whole life insurance is in the fact that the premiums aren’t flexible. In addition, the internal rates of return really aren’t all that competitive compared with other types of savings opportunities. It is very important to keep in mind that although whole life insurance can be either participating or non-participating, not every insurance company will offer both of these forms of whole life insurance, or any of the other types either. It is very important that you check with your insurance company to find out what types of whole life insurance they are offer. If you go through an insurance broker or agent, they can help your find an insurance company that offers the kind of whole life insurance that you are looking for.
Non-participating life insurance is not very flexible. All the determinations are made at the time the policy is issued and then most things can’t be changed. The premiums, death benefits, and cash surrender value are determined at the time that you set the policy up. Once you have been issued your policy you won’t be able to make changes.
However, what this also means is that your insurance company takes the risk of the policy’s performance as compared to actuarial estimates. It is actuaries who determine what the risk levels are for the clients. If the actuary underestimates future claims, the insurance company will have to make the difference up. However, if the actuarial estimates are too high, the insurance company will get to keep that difference. The actuaries most likely aim high when it comes to their risk estimates so that the chances that the insurance company will have to pay when the estimate is too low are significantly lowered.
With participating whole life insurance, when actuarial estimates are too high, the insurance company will share its profits with the policy holders. The more success the insurance company has the more profit and surplus there will be. The insurance company’s best interest is served when they aim high so that they are able to share profits with their policy holders. However, actuaries are actually very adept and their estimates are usually dead on.
In summary, the choice of which type of whole life insurance you choose is up to you, but is one that you shouldn’t take light because your future could very well depend on it.
Tags: non-participating whole life insurance, participating whole life insurance
