What type of policy allows for the distribution of dividends to the policy owner?

Participating life insurance policies are designed to allow policyholders to receive dividends. These dividends are paid out of the insurer's surplus and result from the company's overall financial performance, including its income and expense management, mortality experience, and investment earnings. Because participating policies are owned by policyholders who share in the company's profits, they may receive annual dividends, which can be used in various ways—such as reducing premiums, purchasing additional insurance, or receiving them as cash.

In contrast, non-participating policies do not offer this benefit as they do not share in the profits of the insurance company, thus not providing dividends to policyholders. Group life insurance policies typically do not distribute dividends as they are based on a collective arrangement rather than individual performance. Term life insurance policies also do not generate dividends since they provide coverage for a specific period without a cash value accumulation, which is essential for dividend distribution. Therefore, participating life insurance policies stand out as the correct answer since they specifically allow policy owners to benefit from dividends.