Which of the following statements best describes participating policies?

Participating policies are designed to pay dividends that are based on the insurer's financial performance. This performance can include factors such as the company's investment income, mortality costs, and administrative expenses. Policyholders who own participating policies are generally entitled to share in the profits of the insurance company, which is why they receive these dividends. These dividends can be used in various ways, such as being taken as cash, applied to premiums, or used to purchase additional coverage.

Other statements do not accurately reflect the nature of participating policies. For instance, the fixed premiums option refers to the stable payment structure but does not encapsulate the profit-sharing characteristic that sets participating policies apart. The annual renewals statement does not apply to most life insurance policies, as they typically provide coverage for the policy's term regardless of renewal. Lastly, while participating policies do guarantee a death benefit, it is not exclusive to them and can be an aspect of other policy types as well. Thus, the key feature of participating policies is their ability to pay dividends, underscoring their status as sharing in the company's success.