Terminology - Participating & Non-Participating Policies

Participating Policies

Also known as With-Profit policies.

Refers to life insurance products that share in the profits or surplus of the insurance fund. Policy owners will receive bonuses from the insurer resulting in a death benefit that is greater than the basic sum assured as well as a cash value to the policy.

Non-Participating Policies

Also known as Without-Profit policies.

Refers to life insurance products that do not share in the profits of the insurer. Policy owners will not be entitled to any bonus payment from the insurer.

Terminology - Death Benefit

Death Benefit

Refers to the amount the insured receives in the event of death. The payment is usually made in one lump sum.

In the event that the policy covers total and permanent disability, the amount under death benefit may be paid to the insured in a series of payments depending on the structure of the policy.

Terminology - Cash Value

Cash Value

Also known as Cash Surrender Value or Reserve.

An estimated value which the insured will receive, before certain adjustments, if he or she chooses to surrender a policy after a period of time. This only applies to participating policies.

For example, Mr A buys a participating whole life policy with a sum assured of $100,000 with an annual premium amount of $1,500. After 10 years, he chooses to surrender the policy. He receives $10,000 in return.

Please note that all these figures are for illustrative purposes only.

What is Whole Life Insurance?

Whole Life Insurance is a form of permanent insurance that covers one for his or her entire life or up to a certain age such as 99 or 100. The expression "Whole Life" may not necessarily refer to the period that payments (known as premiums in insurance terminology) are paid. It refers to the period of which the insured is protected.

A whole life insurance policy will usually cover a person against death. As long as premiums are paid, the death benefit will go to his or her beneficiaries. In the case of a whole life policy which tends to be participating in nature, the policy will tend to accumulate value in the form of bonuses over time. This means one will be able to receive a greater payout than the original sum assured. In the event that a policy covers against total and permanent disability, the sum assured will also be activated should the insured meet with such an occurrence.

Because a whole life policy is usually participating in nature, the policy also tends to have a cash value which gives the owner the choice of taking policy loans, converting the policy to a paid up policy and getting some money back if one chooses to surrender the policy after a period of time. It is generally not recommended to do so as one would lose coverage and may not get back an amount which commensurates to what was paid to the policy.

As the policy is able to grow in value, the premiums will tend to be higher compared to a term policy and may be made in regular payments or in a lump sum (known as single premium insurance).

Common features of Whole Life Insurance:

• Protects against death and/or total permanent disability for life or up to an advanced age.
• Accumulates bonuses which add on to the basic sum assured for greater death benefit (for participating policies)
• Has cash value which is indicative of how much one would get should one decide to surrender the policy (for participating policies)
• Premiums will tend to be higher than that of a normal term policy.
• May have policy loan and non-forfeiture options.

Life Insurance or Life Insurance?

When people talk about life insurance, we are generally referring to the Whole Life policies. Perhaps less known to many is that Life Insurance is actually a category comprising of different type of products namely:

• Whole Life


• Term


• Endowment


• Investment-Linked


• Annuities


• Riders

Thus, the life insurance that most of us talk about is actually only one type of insurance in the much larger life insurance category. It is for this reason that this blog will cover the other types of insurance as well under the bigger umbrella of Life Insurance.

Sounds like greek? Too dry and boring?

My friends, I used to hate insurance. The thought of it brings to mind pesky salesmen.

However, this thought changed when I saw families meet with less-than-fortunate situations and found themselves stuck in sticky financial situations as well as those who were not implicated due to to early good judgement.

When I started working in the personal finance area, I was convinced of why one needed to have sufficient insurance and more importantly, to understand it.

Understanding Insurance?

To write about insurance? It is probably so unexpected that anyone would write about something so dry that it is even a little funny.

In my course of work in personal finance, it has come to my attention that insurance is an area that most people hate to deal with but some will know that it is necessary. It is also common to find people who have multiple policies and yet know nothing or understand a word of the documents.

Studies have shown that many claims never occur in the first place because people or their families are not aware that the policies even exist or are claimable. That would make it a gross waste of money, wouldn't it?

This is a little contribution from me to hopefully shed a little light on the seemingly-jargon-filled world of life insurance and so hopefully that both you and I will learn a little as we go along.