A participating insurance policy can do which of the following?

A participating insurance policy is designed to allow policyholders to share in the insurer's profits, which is why it is often associated with the distribution of dividends. Dividends are typically paid out from the excess earnings of the mutual insurance company and can be regarded as a return on the premiums paid by policyholders. These dividends are not guaranteed, as they depend on the insurer's financial performance, but they are a distinctive feature of participating policies.

In contrast, options related to increasing premiums automatically, guaranteeing a minimum interest rate, and automatic yearly renewals do not accurately reflect the nature of participating policies. Premium adjustments generally depend on various factors such as age or health rather than automatic increases, the interest rates can vary based on market conditions rather than being guarantee inherent to the policy type, and renewal conditions are subject to the terms initially agreed upon, not automatically renewed as described. Thus, the ability to pay dividends makes option B the correct choice in this context.