New Jersey Life Producer Practice Exam

What is the term for a company owned by its policyholders?

1. Private insurance company

2. Mutual insurance company

3. Stock insurance company

4. Government insurance agency

The correct answer is: Mutual insurance company

A mutual insurance company is an entity that is owned by its policyholders. This means that individuals who purchase insurance policies from a mutual company have a stake in that company and can influence its operations and decisions, typically through voting rights regarding issues such as the board of directors. In addition, mutual insurance companies often share their profits with policyholders in the form of dividends or reduced premiums, aligning the interests of the company with those of its customers. This distinguishes mutual insurance companies from stock insurance companies, which are owned by shareholders and prioritize returning profits to those shareholders. Private insurance companies and government insurance agencies operate under different ownership structures and objectives, further highlighting the unique characteristics of mutual insurance companies in the insurance market. The mutual model fosters a sense of community and shared financial responsibility among the policyholders, which is a fundamental aspect of its operational philosophy.