New Jersey Life Producer Practice Exam

Which type of insurer does not operate using capital stock?

1. Stock insurer

2. Mutual insurer

3. Fraternal insurer

4. Foreign insurer

The correct answer is: Mutual insurer

A mutual insurer is an organization that does not operate using capital stock. Instead, it is owned by its policyholders. This means that any profits the insurer makes can be returned to the policyholders in the form of dividends or reduced premiums, rather than going to shareholders as is the case with stock insurers. The emphasis here is on the mutual structure which focuses on policyholder benefits rather than external investors. In contrast, stock insurers are owned by shareholders who provide capital to the business and expect to profit from their investment. Fraternal insurers usually function as non-profit organizations providing insurance primarily to members of a particular social group, and while they may operate somewhat differently, they also can have a capital structure. Foreign insurers refer to those that are incorporated in one state but operate in another, and their capital structure can vary. Hence, mutual insurers uniquely stand out by their lack of capital stock involvement.