Life & Health Insurance Exam (National Portion)General InsuranceMedium
A mutual insurance company is characterized by:
- ABeing owned by its stockholders and issuing non-participating policies.
- BBeing a non-profit organization that only covers specific professional groups.
- CBeing owned by its policyholders and issuing participating policies.
- DBeing operated by the state government and providing subsidized insurance.
Show answer & explanationAnswer & explanation
Correct answer: C. Being owned by its policyholders and issuing participating policies.
Mutual insurance companies are owned by their policyholders. They typically issue participating policies, which means policyholders may receive dividends representing a share of the company's divisible surplus.
Why the other options are wrong
- A. This describes a stock insurance company.
- B. While some mutuals might be specialized, their defining characteristic is ownership structure, not non-profit status for specific groups.
- D. This describes a type of government insurance program, not a mutual company.
Mutual Insurance Company
An insurance company owned by its policyholders, who typically receive dividends as a return of excess premiums.
- Policyholders are owners.
- Often issues participating policies.
- Dividends are not guaranteed and are not taxable.
Memory trick: S.M.F.R. - Stock, Mutual, Fraternal, Reciprocal