Maryland Life and Health Insurance License Practice Exam

What type of insurer is owned by its policyowners?

1. Stock insurer

2. Mutual insurer

3. Reciprocal insurer

4. Fraternal benefit society

The correct answer is: Mutual insurer

A mutual insurer is a type of insurance company that is owned by its policyholders, also known as policyowners. In a mutual insurance structure, the policyholders share in the profits and losses of the company, and they have voting rights in major company decisions, such as electing the board of directors. This ownership structure allows policyholders to have a vested interest in the company's performance, aligning the interests of the insurer with those of its members. In contrast, a stock insurer is owned by shareholders who may or may not be policyholders; their primary focus is to generate profits for the shareholders. A reciprocal insurer is owned by its members who mutually insure each other but operates under a different structure involving inter-insurance contracts. A fraternal benefit society provides insurance benefits to members of a specific social, religious, or ethnic group and may have a similar ownership structure to mutual insurers but typically has a more limited focus. Understanding this ownership structure is essential for insurance professionals, as it impacts how insurance products are developed, marketed, and priced, as well as how dividends are distributed among policyholders.