What does a "participating" policy allow policyholders to do?

A "participating" policy allows policyholders to receive dividends based on the company's operational performance. This means that when a mutual insurance company performs well financially, policyholders may be entitled to a portion of the company’s profits, distributed in the form of dividends. Such policies are structured to share the profits of the organization with the insured individuals, thereby giving them a stake in the company's performance.

In a participating policy, policyholders can benefit from these dividends, which can be taken as cash, applied to premium payments, used to purchase additional coverage, or accumulated to increase the policy's value over time. This unique feature distinguishes participating policies from non-participating ones, where policyholders do not receive any dividends.

The other options do not accurately represent the characteristics of a participating policy. For instance, participating policies do not restrict payouts to beneficiaries or mandate the purchase of additional riders. Additionally, while it is true that participating policies may involve higher premiums, that is not their defining characteristic. The essence of a participating policy is the potential for dividends, making option C the most accurate choice.