South Carolina Life Insurance Practice Exam

What type of insurance company returns any surplus of money to its policyholders?

1. Stock Company

2. Mutual Company

3. Fraternal Benefits Society

4. Reciprocal Exchange

The correct answer is: Mutual Company

A mutual company is structured to serve its policyholders, who are also its owners. This means that any surplus profits generated by the company after covering operational expenses and claims can be returned to the policyholders in the form of dividends or reduced premiums. This profit-sharing aspect aligns the interests of policyholders with the company's success, as they directly benefit from its profitability. In contrast, stock companies operate for profit and their shareholders benefit from any surplus, but these shareholders are not necessarily the policyholders. Other entities like fraternal benefits societies and reciprocal exchanges have their unique structures and do not primarily focus on returning surpluses to policyholders in the same manner as mutual companies do.