Life & Health Insurance Practice Exam 2025 - Free Practice Questions and Study Guide

A key characteristic of a stock insurance company is that shares are sold to investors. This structure allows stock insurance companies to raise capital by selling shares to the public. Investors who purchase these shares become shareholders and have a claim on the company's profits, which may be distributed as dividends if declared by the board of directors. This differs from mutual insurance companies, which are owned by policyholders and do not issue stock, as ownership is typically based on membership rather than investment.

Stock insurance companies focus on profit for their shareholders, which informs many of their operational decisions, including pricing and investment strategies. When the company performs well financially, shareholders can benefit significantly from the dividends issued and an increase in stock value. This structure supports the demand for capital needed for underwriting risks and expanding insurance operations, making the sale of shares to investors a foundational aspect of stock insurance companies.