Which description best matches a Mutual Insurance Company?

Which description best matches a Mutual Insurance Company?

• A. Capital stock is owned by stockholders
• B. No permanent capital stock, policyholders participate in dividends
• C. Uses actuarial dividends
• D. Is publicly traded

Answer: (B)

Mutual insurance companies are owned by the policyholders who hold the contracts, not by stockholders. They do not issue permanent capital stock. Any excess from premiums over losses and expenses is returned to policyholders as dividends or used to reduce future premiums. Because ownership rests with the policyholders, those with participating policies share in the company’s profits through dividends. This description fits best: no permanent capital stock and policyholders participate in dividends. Stock companies, by contrast, are owned by stockholders and can be publicly traded, which mutuals generally are not.

Mutual insurance companies are owned by the policyholders who hold the contracts, not by stockholders. They do not issue permanent capital stock. Any excess from premiums over losses and expenses is returned to policyholders as dividends or used to reduce future premiums. Because ownership rests with the policyholders, those with participating policies share in the company’s profits through dividends. This description fits best: no permanent capital stock and policyholders participate in dividends. Stock companies, by contrast, are owned by stockholders and can be publicly traded, which mutuals generally are not.