Insurance Broker Certification Practice Exam

Who is likely to receive dividends from a mutual insurer?

1. Stockholders

2. Policyholders

3. Insurance brokers

4. Government agencies

The correct answer is: Policyholders

Dividends from a mutual insurer are typically distributed to policyholders. This is a fundamental characteristic of mutual insurance companies, which are owned by their policyholders rather than shareholders. In this model, any profits generated by the insurer can be returned to the policyholders in the form of dividends, as they are the ones who contribute to the insurer through their premium payments. Policyholders benefit from the mutual structure since their interests are aligned with the financial health of the insurer directly. The distribution of dividends serves as an incentive for policyholders to remain loyal to the mutual insurer, as they can potentially receive a return on their investment through their insurance contracts. In contrast, stockholders are associated with stock insurance companies, where dividends might be paid to shareholders instead. Insurance brokers do not receive dividends from mutual insurers; their role is to facilitate the sale of insurance products but they do not have ownership in the insurer. Similarly, government agencies do not receive dividends from mutual insurers, as they are not investors in the company. Thus, the correct answer highlights the unique aspect of mutual insurers, underscoring the policyholders' ownership and their right to receive dividends as a potential benefit.