Policy whose returns depend on bonuses (reversionary and terminal) declared by the insurer's participating fund. Returns are partly guaranteed, partly variable.
A participating policy is a life insurance product where the insurer shares profits from a 'participating fund' with policyholders via bonuses on top of the guaranteed amounts.
Most whole-life and endowment policies in Singapore are participating. The insurer pools premiums into a separate fund, invests it across asset classes, and distributes a share of investment + expense surpluses back to policyholders.
Guaranteed: the sum assured and guaranteed cash value, stated in the policy. The insurer must pay these regardless of fund performance.
Non-guaranteed: reversionary bonuses (annual additions to guaranteed value) + terminal bonuses (paid at maturity, death, or surrender). Depends on participating fund performance.
Total payout on a claim = guaranteed sum assured + accumulated reversionary bonuses + terminal bonus.
Long-run net returns typically 3% – 4.5% for the policyholder. Far below equity returns, but with a smoothing mechanism — bonuses don't fall as sharply as markets do in a bad year.
Insurers publish annual 'par fund updates' showing performance, asset allocation, and bonus declarations. Look at 5- and 10-year track records before buying.
Bonus haircuts happen in prolonged downturns. 2018, 2022, and 2023 saw bonus reductions across many SG par funds.
Non-participating policy: only guaranteed benefits. Cheaper premium but no upside from fund performance. Pure protection.
Participating: more expensive premium, with the trade-off of upside from bonuses.
Decision: if you want pure protection, non-par term is more efficient. If you want a hybrid savings + insurance product with smoothed returns, participating works — but compare against 'buy term + invest the difference' before committing.
Surrender value: participating policies have non-guaranteed projected surrender values. The Benefit Illustration will show both 'guaranteed' and 'projected' figures — only the former is contractual.
A whole-life or endowment policy where the insurer shares profits from its participating fund with policyholders via bonuses on top of guaranteed amounts. Most Singapore whole-life policies are participating.
Reversionary bonuses (declared annually, lock in to guaranteed value) and terminal bonuses (declared at claim or maturity, not guaranteed beforehand). Combined, they can substantially exceed the policy's contractual guaranteed values.
No — reversionary bonuses are non-guaranteed each year, but once declared, that year's bonus becomes part of the guaranteed value. Terminal bonuses are entirely non-guaranteed until paid. Insurer participating-fund performance can lead to bonus cuts (as seen in 2018 – 2023).
Participating policies have higher premiums but offer upside from bonuses. Non-participating term has the lowest premium and pure protection. For most income-replacement needs, non-par term wins on cost-efficiency. Par-life makes sense for estate planning or as a smoothed-return savings element.