What distinguishes participating whole life policies from non-participating whole life policies?

Participating whole life policies are distinguished by their ability to pay dividends to policyholders. These dividends are typically a return of excess premiums that the insurance company has received, which can be influenced by the company’s overall financial performance, including investment returns and claims experience. As a result, policyholders of participating policies may receive dividends that can be used in various ways, such as reducing future premiums, purchasing additional insurance coverage, or taken as cash.

In contrast, non-participating whole life policies do not share in the insurer's surplus through dividends. These policies generally provide a guaranteed death benefit and a fixed cash value but do not allow policyholders to experience the potential financial benefits offered by participatory dividends. This distinction is foundational in understanding how these policies function and the financial implications for consumers choosing between them.

The presence or absence of dividends is a key factor that plays a significant role in the value and attractiveness of whole life insurance options for consumers.