South Carolina Life Insurance Practice Exam

The insurer organized to return a profit to stockholders is known as what type of insurer?

1. Mutual Company

2. Non-Profit Organization

3. Stock Company

4. Reciprocal Insurer

The correct answer is: Stock Company

A stock company is an insurer that is organized primarily to earn a profit for its stockholders. In this model, the ownership of the company rests with the shareholders who invest their capital into the company in exchange for shares. The company's primary goal is to increase the value of its shares and generate profits, which can be distributed to stockholders in the form of dividends. In contrast, a mutual company is owned by its policyholders, who have a say in company decisions and can receive dividends based on the company's performance. Non-profit organizations operate under a different structure altogether, focusing on providing services rather than generating a profit for shareholders. Reciprocal insurers are groups of individuals or businesses that agree to insure each other's risks, functioning similarly to a cooperative rather than a profit-driven company. Understanding these distinctions is crucial for recognizing the various structures within the insurance industry and their respective objectives. In summary, a stock company is specifically designed to benefit its stockholders through profit generation, which is the fundamental characteristic that defines this type of insurer.