California Life-Only & Accident and Health AgentGeneral InsuranceEasy
An insurance company specializing in health and dental plans is structured so that its policyholders are also its owners, sharing in any profits through dividends or reduced premiums. What type of insurer is this?
- AMutual Insurer
- BStock Insurer
- CReciprocal Exchange
- DLloyd's Association
Show answer & explanationAnswer & explanation
Correct answer: A. Mutual Insurer
A mutual insurer is owned by its policyholders. Policyholders receive dividends, which are actually a return of unused premium, or reduced premiums, reflecting their ownership stake and participation in the company's profits.
Why the other options are wrong
- B. A stock insurer is owned by its stockholders, who receive dividends when declared.
- C. A reciprocal exchange is an unincorporated group of individuals or organizations that agree to insure each other's losses, often managed by an attorney-in-fact.
- D. A Lloyd's Association is a marketplace where individual underwriters (syndicates) accept risks, not an insurer owned by policyholders in this manner.
Mutual Insurer
A mutual insurer is an insurance company owned by its policyholders, who share in the company's profits through dividends or reduced premiums.
- Policyholders are both customers and owners.
- Profits are returned to policyholders, not stockholders.
- Often characterized by lower operating costs and a focus on policyholder benefits.
Memory trick: Mutual means 'we' own it, stock means 'they' own it.