California Life and Health Insurance Practice Exam

A participating company is also referred to as which type of insurer?

1. Stock insurer

2. Reciprocal insurer

3. Mutual insurer

4. Fraternal benefit society

The correct answer is: Mutual insurer

A participating company is accurately referred to as a mutual insurer. This type of insurer allows policyholders to participate in the company's profits and losses, which is done through dividends or reductions in premium costs. The key distinction of a mutual insurer is that it is owned by its policyholders, with each policyholder having a stake in the company and the ability to share in its financial successes. In contrast, a stock insurer is owned by shareholders and may pay dividends to them instead of the policyholders. A reciprocal insurer is a type of insurance exchange where the members mutually insure one another, and a fraternal benefit society serves a specific social or religious group, often providing insurance and other benefits to its members. Therefore, the mutual insurer model encapsulates the essence of a participating company, focusing on the involvement of policyholders in the company's operations and profits.