South Carolina Life Insurance Practice Exam

What is typically a characteristic of a mutual insurance company?

1. They are owned by shareholders

2. They provide dividends to policyholders

3. They must issue stock

4. They focus only on life insurance

The correct answer is: They provide dividends to policyholders

A mutual insurance company is typically characterized by its ownership structure, which is distinct from that of stock insurance companies. In a mutual insurance company, the policyholders are the owners of the company. This ownership structure leads to a key characteristic of mutual insurance companies: they often provide dividends to their policyholders. Dividends can be issued when the company has excess earnings after paying claims and operational expenses. Therefore, the policyholders share in the company's profitability, which aligns with the mutual ownership concept. In contrast to mutual companies, stock insurance companies are owned by shareholders and may not provide dividends to policyholders. Furthermore, mutual insurance companies do not need to issue stock, distinguishing them further from stock insurance companies. Additionally, mutual companies do not exclusively focus on life insurance; they can offer a variety of insurance products, including property and casualty insurance, meaning their focus is not limited to life insurance only. This broad range of product offerings underscores the idea that mutual insurance companies serve a diverse set of insurance needs beyond just life insurance.