A participating policy is a type of life insurance that allows you to earn dividends, which are credited annually to the policyholder's account. These funds can either be taken in cash, used in a variety of ways, such as an accumulation of premiums or added to the policy’s face value. These dividends are based on returns on investment made by the insurance company, which can be in the form of bonds, stocks, and other investments.

Participating policies typically have higher premiums since they come with additional benefits like dividend payments. The participating policyholder pays a fixed amount of money every month depending on the contract terms. These premiums are invested by the insurance company in stocks, bonds and other types of investments, and a portion of these investments will generate dividends for the participating policyholder.

Participating policies can offer an attractive opportunity for long-term financial planning. Because the money paid in premiums earns interest and can be accumulated to increase the policy's face value, policyholders may find that it can serve as a retirement vehicle when done properly. In addition, because shareholders earn dividend payments each year, these policies may also offer a way to generate income during retirement or save for regular expenses.

Furthermore, when used for estate planning, a participating policy can provide liquidity for beneficiaries to pay state and federal inheritance taxes. This can be accomplished by having the life insurance proceeds distributed to the beneficiaries in the form of a loan, as opposed to a lump sum payment.

In conclusion, participating policies are one of the most flexible and convenient types of life insurance available today. Not only do they offer potential policyholders the opportunity to build and accumulate wealth, but they also come with attractive benefits, such as dividend payments, which can benefit both one's current and future financial standing.