South Dakota Crop Insurance Practice Exam

What characterizes fraternal benefit societies?

1. They are for-profit insurers

2. They only sell to members of a fraternal organization

3. They have no specified ownership structure

4. They can operate without state regulation

The correct answer is: They only sell to members of a fraternal organization

Fraternal benefit societies are unique entities that primarily cater to members of a specific fraternal organization. Their main purpose is to provide insurance and financial benefits to their members, who typically share a common bond, such as religion, occupation, or ethnicity. This characteristic of selling insurance exclusively to members of a fraternal organization highlights the social and mutual benefit aspects of these societies, as they often aim to enhance the well-being and financial stability of their members through group-oriented and community-based support. While the other characteristics mentioned may seem relevant, they do not define the core essence of what fraternal benefit societies are. For instance, being for-profit is not applicable, as these societies often operate on a non-profit basis, focusing on providing benefits rather than generating profits for shareholders. Moreover, they do have specific governance structures in place, which differentiate them from more loosely structured organizations. Lastly, fraternal benefit societies are subject to state regulation, much like other insurance providers, to ensure financial stability and protect consumers, indicating that they cannot operate without adhering to regulatory standards.