What is a key characteristic of participating policies?

Participating policies are designed to share the financial success of the insurance company with policyholders through dividends. One key feature of these policies is that they may provide non-taxable dividends, which are distributed to policyholders based on the insurer's profitability and overall performance. This characteristic is particularly appealing since policyholders can benefit from these dividends without facing tax implications, enhancing the overall value of the policy.

Dividends are typically not guaranteed, meaning that while they may be issued based on a company’s earnings, there is no assurance of receiving a specific amount every year. This is important to note when considering the relationship between participating policies and the potential benefits they offer.

The other options relate to different attributes or conditions that do not accurately describe the main feature of participating policies with respect to dividends. Understanding the concept of non-taxable dividends is crucial for recognizing how participating policies can enhance policyholder value and provide financial benefits over time.