Which statement best describes a participating life insurance policy?

A participating life insurance policy is designed to allow policyholders to share in the profits of the insurance company. This typically occurs through the payment of dividends to policyholders, which can be used in various ways such as paying premiums, purchasing additional coverage, or being taken as cash. The primary characteristic of a participating policy is that it provides benefits beyond just the death benefit, including potential dividends, which can enhance the value of the policy over time.

This shared profit structure distinguishes participating policies from non-participating policies, where policyholders do not receive dividends. The concept of sharing profits aligns with the mutual company structure that often issues participating policies, emphasizing a cooperative benefit to the insured.

In contrast to the other options, which describe characteristics not associated with participating policies, the correct statement highlights the financial engagement and benefit structure that appeals to many consumers looking for long-term value in their life insurance.