AD Banker Comprehensive Practice Exam

Which is the proper term for a company owned by its policyowners?

1. A charitable insurance company

2. A reciprocal insurance company

3. A domestic insurance company

4. A mutual insurance company

The correct answer is: A mutual insurance company

The term that accurately describes a company owned by its policyowners is a mutual insurance company. In this structure, policyholders have an ownership stake in the company, which differentiates it from other types of insurance companies. The profits earned by the mutual insurance company may be returned to policyowners in the form of dividends or used to reduce future premiums, emphasizing its commitment to serving its members rather than external shareholders. A charitable insurance company refers to an organization focused on philanthropic activities, which does not imply ownership by policyholders. A reciprocal insurance company refers to an arrangement where members exchange insurance contracts, but this is not the same as being owned directly by policyowners. A domestic insurance company simply indicates that the company is incorporated and operates within a specific state or jurisdiction; it does not inherently convey ownership structure. Thus, mutual insurance company is the correct term reflecting the ownership model described in the question.