What is a common feature of participating policies in life insurance?

Participating policies in life insurance are designed to allow policyholders to share in the insurer’s profits, which is why they provide the potential for dividends. These dividends are not guaranteed, but they typically come from the surplus earnings of the insurance company and can be paid out to policyholders on an annual basis. This feature aligns with the mutual principle of insurance, where policyholders essentially become part-owners of the insurance company and can benefit from its financial performance.

The ability to receive dividends enhances the attractiveness of participating policies, allowing policyholders to potentially reduce the cost of premiums, increase the death benefit, or take cash payouts. This element of sharing in profits is a distinctive quality that sets participating policies apart from non-participating policies, which do not offer dividends at all.

The other features described by the incorrect options do not align with the core characteristics of participating policies. For instance, fixed premiums can apply to both participating and non-participating policies, loans may be available depending on the policy’s structure, and beneficiaries can be selected without limitations based on the policy type.