South Dakota Crop Insurance Practice Exam

What type of company is a non-profit insurer owned by its policyholders?

1. Stock company

2. Fraternal benefit society

3. Mutual company

4. Surplus lines insurer

The correct answer is: Mutual company

A mutual company is a type of insurance organization owned by its policyholders rather than shareholders. In a mutual company, profits are typically distributed to policyholders in the form of dividends or lowered premiums, aligning the interests of the policyholders with the overall success and sustainability of the insurer. This structure promotes a focus on providing insurance benefits and maintaining stability for its members, as opposed to prioritizing profit maximization for external shareholders. The other categories listed are distinct in their structures and purposes. Stock companies are owned by investors who hold shares of the company and seek profit through stock appreciation and dividends. Fraternal benefit societies operate as mutual organizations but are generally focused on specific social or cultural groups, providing specialized benefits to members. Surplus lines insurers deal with high-risk coverage outside the standard market and are not owned by their policyholders. All these distinctions highlight the unique nature of mutual companies in the insurance landscape.