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Financial advisory
RES5Financial Advisory Services✓M9 — Life Insurance & Investment-Linked Policies
A participating (par) policy — also called a with-profits policy — is a life insurance product that shares in the profits or surplus of the insurer's participating fund. Premiums are pooled into a specially designated par fund invested across government and corporate bonds, equities, property and cash, with the investment mix shifting over time in line with the insurer's strategy; the objective is long-term solvency against claim/maturity liabilities rather than maximum gains. Every par policy is written in the par fund, and both guaranteed and non-guaranteed benefits are paid out of the fund's assets. The insurer must pay the guaranteed benefits regardless of fund performance; if the fund has insufficient assets, the insurer must inject additional capital to make good the shortfall. Unlike an ILP — where each owner's assets are identifiable as units held — assets are not separately maintained for each par policy owner. An ILP instead links the policy value directly to units in chosen sub-funds: it carries no guaranteed cash value and the policy owner bears the full investment risk, in exchange for transparency and potentially higher returns.
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A participating (par) policy — also called a with-profits policy — is a life insurance product that shares in the profits or surplus of the insurer's participating fund. Premiums are pooled into a specially designated par fund invested across government and corporate bonds, equities, property and cash, with the investment mix shifting over time in line with the insurer's strategy. The objective is long-term solvency against claim or maturity liabilities rather than maximum gains. Every par policy is written in the par fund, and both guaranteed and non-guaranteed benefits are paid out of the fund's assets. The insurer must pay the guaranteed benefits regardless of fund performance; if the fund has insufficient assets to meet them, the insurer must inject additional capital to make good the shortfall. Unlike an ILP — where each owner's assets are identifiable as units held — assets are not separately maintained for each par policy owner.
Common par products are participating Whole Life, Endowment, Anticipated Endowment and Annuity policies, typically used for combined savings/investment and protection. Riders (term, critical illness, accidental death) can be attached but usually do not participate in fund profits. Some non-participating policies and riders are also written in the par fund, and their experience can affect fund performance and hence bonus levels. Policies with a higher proportion of guaranteed benefits run a more conservative mandate (e.g. more government bonds); those with a higher proportion of bonuses are supported by more volatile assets like equities — so benefits should be assessed in totality, not guaranteed vs bonus in isolation.
Guaranteed benefits are the sum assured plus guaranteed surrender values. Non-guaranteed benefits (bonuses) are usually additions to the sum assured and depend on the value of the assets backing the policies, which turns mainly on investment performance (usually by far the most important factor), the expenses incurred/allocated to the fund, and the claims paid. Two main types:
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Some par policies pay cash dividends instead of sum-assured additions; RB and TB may also be allotted as an equivalent cash amount, which owners can usually convert to paid-up additions or apply to reduce future premiums. An interim bonus may go to policies terminating early in the year before the annual declaration is finalised (typically March/April, after audited accounts and Board approval).
Death benefit = guaranteed death benefit + bonuses credited; surrender value = guaranteed surrender value + surrender value of bonuses; paid-up amount = guaranteed paid-up value + paid-up value of bonuses (bonus amounts may be lower on surrender/paid-up). Some policies allow the insurer to reduce surrender values when markets fall sharply, so those surrendering do not take an unfair share of assets.