What Is a Participating Life Insurance Policy?

A participating life insurance policy is a life insurance contract that offers the potential for dividend payments.
Robin Hartill, CFP®
By Robin Hartill, CFP® 
Edited by Lisa Green Reviewed by Tony Steuer

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A participating life insurance policy is a type of life insurance that pays dividends to policyholders when the insurer has surplus funds. Sometimes, participating life insurance is called dividend-paying life insurance.

An insurance carrier may have extra funds because its investments performed well, it had to pay out fewer death benefits than it projected or it found ways to cut expenses. If the insurer’s board of directors decides at the end of the business year that it doesn’t need the extra money, it may distribute part of the surplus to policyholders as dividends. However, dividends aren’t guaranteed when purchasing a participating life insurance policy.

New York State Department of Financial Services. Types Of Life Insurance Policies. Accessed Dec 1, 2023.

Participating life insurance policies are typically whole life insurance contracts. Whole life insurance is a type of permanent life insurance, meaning the coverage lasts your entire life. These policies often feature a cash value component that functions like a savings account.

Because it offers permanent coverage and accumulates cash value, whole life insurance is significantly more expensive than term life insurance, which pays a death benefit only if you die during a specified period. A participating whole life insurance policy typically costs even more than a nonparticipating whole life insurance policy (which doesn’t offer dividends) because of those dividend payments.

Mutual life companies are most likely to issue participating life insurance policies. Unlike stock insurance companies, which are publicly traded and owned by shareholders, a mutual life insurance company is owned by policyholders.

According to the American Council of Life Insurers, about 70% of the face value of individual life insurance policies issued in 2021 were nonparticipating policies.

American Council of Life Insurers. ACLI 2022 Life Insurers Fact Book. Accessed Dec 4, 2023.

To buy a participating life insurance policy, look for whole life insurance that’s offered by a mutual life company, rather than a stock life insurance company. If you have an existing policy and you’re not sure whether it’s participating or nonparticipating, check your policy documents or contact your insurer directly.

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