Participating and non-participating policies

What are participating and non-participating policies?

A participating policy, or par policy, is a life insurance contract that is entitled to a share of the profits (surplus) of the insurer's participating business during the policy term. That share reaches the policyholder as bonuses added to the sum assured, or sometimes paid in cash. A non-participating policy, or non-par policy, has no such right: it pays only the benefits written into the contract, which may be fixed in rupees, linked to fund values, or both.

The distinction is set by law. The IRDAI (Insurance Products) Regulations, 2024 define par products as those whose policies are entitled to share in surplus during the term "as per section 49" of the Insurance Act, 1938. All unit linked products must be non-par.

How participating and non-participating business works in India

Separate funds

Under the IRDAI (Actuarial, Finance and Investment Functions of Insurers) Regulations, 2024, a life insurer must keep separate life funds for participating and non-participating policyholders. If it fails to do so, the whole life fund is treated as belonging to participating policyholders.

How the par surplus is shared

Each year the appointed actuary values the par fund's assets and liabilities. The surplus that emerges is split between policyholders and shareholders:

In practice, at least 90% of distributed par surplus goes to par policyholders as bonuses. Insurers need IRDAI's prior approval for any allocation that departs from the one-ninth ratio.

How bonuses are paid

The product regulations require par maturity benefits to closely reflect the policy's asset share, and fix the rhythm of bonuses:

• Regular or reversionary bonus is declared only once a year and, once added, becomes a guaranteed part of the policy.
• Interim bonus is declared at the annual valuation and paid on claims that arise before the next valuation.
• Terminal bonus or other bonus forms may be paid on specified events or at the end of the term.

On death, the bonuses attached to a par policy are paid along with the sum assured.

Other rules that follow the par or non-par label

• A rider takes the same character as its base policy, so a rider on a par policy is par business.
• The special surrender value of a par policy represents its asset share; for a non-par savings policy it reflects a notional asset share and the guaranteed benefits.
• Non-par individual savings benefits must be fixed in rupees at the start, with no insurer discretion.
• Benefit illustrations for par plans must show outcomes at gross returns of 4% and 8% a year.

Par and non-par compared

What par and non-par mean for distribution

The label decides what a seller can and cannot say about a policy.

• Bonuses are not promised. For a par plan, the seller can describe the bonus mechanism and show the 4% and 8% illustration, but cannot promise a bonus rate. Quoting last year's declared rate as if it will repeat for 20 years is a common route to complaints.
• Vested bonuses are real. Once declared and attached, reversionary bonuses become part of the guaranteed benefit. Explaining this difference helps customers value a par policy they already hold before they surrender it.
• Non-par certainty has a price. A non-par guaranteed plan gives certainty but locks the return. A par plan gives a smaller guaranteed base with a chance of more. Customers should choose with that trade-off explained, not with the label "guaranteed" doing the selling.
• Insurer economics. Because shareholders can keep the whole non-par surplus but only a tenth of the par surplus, non-par products usually matter more to private insurers' profits, and product shelves and incentives often reflect that. Distributors with open architecture should be aware of this when they decide which products to put in front of customers.
• The LIC factor. LIC's large par book and its annual bonus declarations shape customer expectations across the market. Agents moving between LIC and private insurers should check each insurer's bonus history and philosophy rather than assume LIC-like outcomes.
• Ind AS 117. As insurers move to Ind AS 117 reporting, IRDAI's March 2026 amendment to the actuarial, finance and investment regulations keeps the actuarial surplus under section 49 as the basis for sharing par surplus and says Ind AS 117 profit is not distributable surplus. Bonus declarations therefore continue to rest on the actuarial valuation.