What does it mean for a whole life policy to be "participating"?

A whole life policy being described as "participating" signifies that the policyholder is entitled to receive dividends from the insurance company. These dividends are typically a portion of the company's profits that are distributed to participating policyholders. This type of policy is often associated with mutual insurance companies, which exist to benefit their policyholders rather than shareholders.

When the company performs well financially, perhaps due to lower-than-expected claim amounts or higher investment returns, it may declare dividends. These dividends can be used in various ways, such as taking them in cash, using them to reduce premiums, purchasing additional insurance, or leaving them to accumulate interest.

This contrasts with non-participating policies, which do not provide dividends, meaning the policyholder receives only the guaranteed death benefit. Therefore, the concept of "participating" is crucial for understanding how some whole life insurance policies offer additional value through the potential for dividends tied to the company's performance.