Nonparticipating life insurance policy

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Nonparticipating life insurance policy

Life insurance policy whose policyholders do not receive dividends, because they are not participants in the interest, dividends, and capital gains earned by the insurer on premiums paid.

Nonparticipating Life Insurance Policy

A life insurance policy in which the policyholder does not have the right to receive a portion of the investments that the insurance company makes with the policyholder's premiums. That is, in a nonparticipating life insurance policy, the policyholder makes his/her premiums and, in exchange, the beneficiary receives a lump sum upon the policyholder's death. This sum will not increase or decrease depending on the performance of the insurance company's portfolio.
References in periodicals archive ?
In the case of nonparticipating policies, all elements -- premiums, death benefits, and the schedule of cash values -- are guaranteed and fixed.
Recall that the stock insurer offers nonparticipating policies at a price of [P.sup.*.sub.0] and partially participating policies at a price of [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII], where prices are calculated using the framework developed in Section 2.
In the case of nonparticipating policies, all elements--premiums, death benefits, and the schedule of cash values--are guaranteed and fixed.
The law as written restricts shareholders of a life insurance company to 7.5% of the profits in both participating and nonparticipating policies.
Clients with old nonparticipating policies (which don't earn dividends) that don't reflect updated mortality experience may benefit by replacing them with policies with lower premiums or higher death benefits.
Again, it may be necessary to replace only nonparticipating policies that have not been upgraded.
Since there are no dividends on nonparticipating policies, the net cost of these policies is equal to the total premiums paid.
Because a participating policy bundles an option on the assets with a regular policy, for a given value of the liabilities, the fixed component of the liabilities is smaller in participating policies than in nonparticipating policies. Furthermore, if asset value falls, the induced increase in leverage is smaller in firms that issue participating policies than in firms that issue only non-participating policies.
In a model in which managerial effort is positively correlated with profitability, the authors show that managers exert less effort when the firm issues participating policies than when the firm issues only nonparticipating policies. Agency theory therefore suggests that participating policies would be more likely in firms whose costs of shareholder-policyholder incentive conflict dominate the cos ts of shareholder-manager incentive conflict.
Because a participating policy bundles an option on the assets with a regular policy, for a given value of the liabilities the fixed component of the liabilities is smaller in participating policies than in nonparticipating policies. Al so, if asset value falls, the induced increase in leverage is smaller in firms that issue participating policies than in firms that issue only nonparticipating policies.
While mutual insurers usually issue participating life insurance policies, stock insurers mostly issue nonparticipating policies (see American Council of Life Insurance, 1992, p.
Participating policies typically have higher premiums than nonparticipating policies to permit dividend payments to policyholders.