AD Banker Comprehensive Practice Exam

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Enhance your exam readiness with the AD Banker Comprehensive Exam guide. Includes flashcards and multiple-choice questions with explanations.

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Practice this question and more.

To be able to start operations, a mutual company must have all of the following, except:

A minimum number of stockholders
The advanced premium payment for each application
A minimum number of applications for insurance
A minimum surplus as specified by the state

The correct answer is: A minimum number of stockholders

In the context of a mutual insurance company, which is owned by its policyholders rather than stockholders, having a minimum number of stockholders is not a requirement to start operations. This is because mutual companies do not issue stock; their structure relies on the collective contributions of policyholders who have a mutual interest in the company. On the other hand, advanced premium payments, a minimum number of applications for insurance, and a minimum surplus as mandated by state regulations are essential for the establishment and financial stability of the mutual company. Advanced premium payments ensure that the company has initial funding, while a minimum number of applications signifies market interest and demand. Additionally, maintaining a specified minimum surplus is crucial for regulatory compliance and to ensure the company can meet its future obligations to policyholders. This safety net helps bolster the financial health of the entity as it begins operations.