West Virginia Property and Casualty Licensing Practice Exam

Which type of insurance company is primarily owned by the policyholders?

1. Mutual insurance company

2. Stock insurance company

3. Fraternal benefit society

4. General insurance company

The correct answer is: Mutual insurance company

The choice of a mutual insurance company is correct because this type of company is specifically structured to be owned by its policyholders. In a mutual insurance company, policyholders are effectively the owners and have a say in the governance of the company, often having the right to vote on key issues such as the election of the board of directors. The profits generated by mutual insurance companies are typically returned to the policyholders in the form of dividends or reduced future premiums, making the structure highly aligned with the interests of those insured. In contrast, a stock insurance company is owned by shareholders who may or may not be policyholders, with an emphasis on generating profit for those shareholders. A fraternal benefit society, while it may offer insurance and is often community-focused, operates on a not-for-profit basis and is typically organized around social or cultural affiliations rather than direct ownership by policyholders. A general insurance company does not specify ownership structure but instead refers more broadly to various types of insurance entities that provide coverage across multiple disciplines. Hence, the mutual insurance company's unique ownership structure centered around policyholders distinguishes it as the correct answer.