Which type of life insurance policy is known for distributing its divisible surplus to policyowners in the form of dividends?

The type of life insurance policy that distributes its divisible surplus to policyowners in the form of dividends is the participating policy. Participating policies are designed to allow policyholders to share in the insurer's surplus. This surplus arises from factors such as lower claim payments than anticipated, higher than expected investment returns, or general efficiency in operations.

In contrast, term policies do not accumulate cash value or generate dividends; they provide coverage for a specified period and only pay out a benefit if the insured dies during that term. Whole life policies, while they can be participating, do not inherently guarantee dividend distribution; it depends on the specific type of whole life policy offered by an insurer. Universal life policies offer flexibility in premium payments and death benefit amounts, but they also do not distribute dividends as participating policies do.

Therefore, the defining characteristic of participating policies that enables them to distribute dividends makes this the correct choice.