Your Question Answered: What are participating life insurance plans and their advantages?

livemint.com:

portfolio is well diversified and reflects your risk profile. Participating in life insurance plans enables you to do both! At 30 years of age, the advantage you’d enjoy by investing in a participating life insurance policy is the financial head start it will provide. Let me elaborate.

Unlike regular insurance policies, a participating life insurance policy allows you to participate in the policy profits in the form of bonuses or dividends. Bonuses are typically declared on an annual basis and will depend on the overall performance of participating policies in that year. Therefore, policyholders have the chance of gaining higher payouts as the profits increase.

Now let's find out how the bonus is calculated. - Let's assume that a policyholder buys a participating policy with a sum assured of Rs10,00,000 and the bonus rate is ₹30 per 1000 of the sum assured. - This means for every Rs1,000 of the Sum Assured, the policyholder would receive a bonus of ₹30.

- Therefore, for the policy, the bonus amount for a year would be calculated as follows: (30/1000) * 10,00,000 = ₹30,000. - For a 10-year policy and if the bonus rate for each year is ₹30 per 1000 of the sum assured, the bonus amount is calculated as follows: 30,000 * 10 = ₹3,00,000. Hence, the total maturity payout will be a total of the assured amount and the declared bonuses.

In this case, the maturity payout would be 10,00,000 + 3,00,000 = ₹13,00,000. Additionally, the final maturity payout can depend on other factors such as policy terms, premium payment frequency, and any riders or additional benefits attached to your policy and, if applicable, a final year terminal bonus. While you may have outlined your life goals, they can change with time.