Which policy would likely cost more, a participating policy or a non-participating policy?

A participating policy would likely cost more than a non-participating policy due to the additional benefits and features it offers. Participating policies are designed to share the profits of the insurance company with policyholders in the form of dividends. These dividends can be used in various ways, such as purchasing additional insurance, reducing premiums, or being taken as cash.

To fund the potential dividends and the added benefits that come with them, participating policies usually have higher premiums compared to non-participating policies, which do not offer dividends. Non-participating policies typically have lower premiums because they do not distribute any portion of the company's profits to the policyholders. Consequently, the absence of dividends means the insurer can charge less for coverage, leading to the conclusion that participating policies are generally more expensive.

Understanding this distinction is critical for clients when choosing a policy based on their financial goals and preference for potential profit-sharing.