New Jersey Life Producer Practice Exam

What type of insurer is incorporated under New Jersey law, without permanent stock, and governed by elected policyholders?

1. Stock insurer

2. Mutual insurer

3. Fraternal insurer

4. Reciprocal insurer

The correct answer is: Mutual insurer

A mutual insurer is the correct choice for this question because it is specifically designed to be owned by its policyholders. This means that instead of having shareholders, the policyholders elect the board of directors, which makes decisions about the management of the company in the best interests of the insured individuals. In New Jersey, a mutual insurer operates without permanent stock, meaning there are no shares available for sale that would typically provide external investors with ownership or profit motivation. Instead, the focus remains on providing benefits to the members who are also the customers. By contrast, stock insurers are owned by shareholders who invest capital in exchange for profits, which does not align with the structure of a mutual insurer. The other types of insurers, such as fraternal and reciprocal insurers, have their own unique characteristics and purposes but differ significantly from mutual insurers. Fraternal insurers typically serve a social or charitable function for their members, while reciprocal insurers involve a group of individuals who agree to insure each other by exchanging insurance contracts. These distinctions further clarify why a mutual insurer is the best fit for the description provided in the question.