Participating Policy

A participating policy (often called a "par policy") is a whole life insurance policy that is eligible to receive dividends from the issuing company. Participating policies are issued by mutual companies, where policyholders are partial owners of the company.

The "participating" designation means you participate in the company's surplus — when the carrier performs better than projected (lower claims, better investment returns), the excess is returned to participating policyholders as dividends.

Dividends are not guaranteed, but mutual companies with long track records have paid dividends consistently for over a century. Dividends can be:

• Taken as cash
• Applied to reduce premiums
• Left to accumulate at interest
• Used to purchase Paid-Up Additions (PUAs) — the most common choice for banking practitioners

Purchasing PUAs with dividends accelerates cash value growth and increases the death benefit, making it the preferred dividend option for whole life banking.

Related terms: Mutual Company, Dividend, Paid-Up Addition (PUA), Whole Life Insurance