When it comes to insurance policies, it’s important to understand different types available in the market. A common distinction between them is that some are par and others are non-par insurance policies. These terms refer to how the policies handle the distribution of profits or dividends. While par or participating insurance policies are contracts that allow policyholders to participate in the profits and surplus of the insurance company, non-par or non-participating policies do not do so. These are commonly associated with traditional life insurance policies. Let us delve deeper into the features of these policies and what they offer.

What Are Par Policies?

• Once you buy a par policy, you are entitled to a share in the profits generated by the company’s investment activities.
• Policyholders may receive annual dividends, which can be paid out in cash, through reduction in premiums, or as additional insurance coverage.
• Policyholders may have the right to vote and influence the company’s decisions during annual general meetings or elections of the board of directors.
• These are long-term commitments, and policyholders are encouraged to keep them for an extended period to maximise the potential returns.

What Are Non-Par Policies?

• Non-par insurance policies have fixed premiums, meaning the premium remains constant throughout the policy term.
• Non-par policies do not generate dividends for policyholders. The premiums you pay go towards providing coverage and covering the costs and expenses of the insurer.
• The lack of dividends allows for predictable premiums and coverage without the uncertainty associated with profit-sharing.
• Non-par policies are transparent as policyholders know what they are paying for and the coverage they will get without the variability introduced by profit-sharing.

How Do You Choose?

• Par policies have the potential to give higher returns through dividend payments, but these are not guaranteed. Non-par policies offer transparency but do have the potential for additional returns.
• Par policies may provide more flexibility in premium payment options and modification in terms. Non-par policies often have fixed premiums and limited flexibility.
• Par policies usually require a long-term commitment to maximise the benefits. That is not necessarily the case with non-par policies.
• Consider your financial goals and risk appetite before choosing between the two types of policies.