South Carolina Life Insurance Practice Exam

Which type of insurer is typically owned by its policyholders?

1. Stock insurer

2. Mutual insurer

3. Reciprocal insurer

4. Fraternal insurer

The correct answer is: Mutual insurer

A mutual insurer is structured to be owned by the policyholders themselves, which means that the individuals who purchase policies from the insurance company are also the owners of the company. This model aligns the interests of the policyholders with the operations of the insurer, as profits can be returned to them in the form of dividends or reduced premiums, rather than being distributed to shareholders as in the case of stock insurers. Mutual insurers often emphasize providing services and protection to their members, rather than prioritizing profit maximization. This member-focused approach can lead to a greater level of customer satisfaction and loyalty, as policyholders have direct input into the company's decisions and benefit from its successes. In contrast, stock insurers are owned by shareholders, while reciprocal insurers are owned by their members, who agree to insure each other's risks. Fraternal insurers operate for the benefit of their members within a specific group or society. While they may also prioritize the welfare of their members, they do not have the same ownership structure as mutual insurers.