An insurance contract that involves direct participation of policyholders whereby they are allowed to share in the profits in the general pool/ investment portfolio with the insurer, while being covered under a guarantee limiting their downside risk. Participation opportunity and guarantee are provided against the premiums paid by policyholders to the insurer.

The premiums are mobilized on the basis of participating policies that not only provide a specified level of coverage, pay policyholders dividends generated from the investment returns made by investment-related activities. Investment-related services, provided by insurers, are integrated with insurance coverage, and for which an insurer receives a variable fee.

Direct participation involves multiple distinguishing features such as participation of policyholders in a share of an identifiable pool of underlying items as per the contractual terms. Furthermore, the insurance firm expects to pay the policyholder an amount equal to a substantial portion of the fair value gains on the underlying items and it also expects that a substantial proportion of any change in the amounts payable to the policyholder will vary with the change in fair value of the underlying items.