What is the primary distinction between a participating policy and a non-participating policy?

The primary distinction between a participating policy and a non-participating policy lies in the benefits provided to the policyholder, specifically in the form of dividends. Participating policies allow policyholders to receive dividends, which are a share of the insurer's profits. These dividends can often be used in various ways, such as reducing premiums, purchasing additional coverage, or being taken as cash.

In contrast, non-participating policies do not offer dividends to the policyholder. This is a fundamental feature that affects how policy performance and benefits are structured. Non-participating policies typically have a fixed premium and guaranteed benefits, but they lack the potential for additional income through dividends, which is a key appeal of participating policies.

The other options confuse aspects of policy features but do not capture the core distinction. Non-participating policies do not necessarily cost more; their premiums can be lower due to a lack of dividend payouts. Furthermore, participating policies often do accumulate cash value, which contrasts with the incorrect assertion that they do not. Lastly, stating that both are the same is inaccurate, as the dividend feature significantly differentiates these two types of policies.