Life & Health Insurance Practice Exam

Both mutual and stock insurance companies can issue what to their policyholders?

1. Refunds

2. Dividends

3. Tax exemptions

4. Loan options

The correct answer is: Dividends

Mutual and stock insurance companies can issue dividends to their policyholders as a form of profit distribution. In the case of mutual insurance companies, which are owned by the policyholders, dividends are typically declared when the company performs well and has surplus earnings. These dividends are returned to policyholders because they are essentially the owners of the company. The distribution can be seen as a reward for their loyalty and as a return on their contributions to the company. Stock insurance companies, although they are primarily focused on generating profits for shareholders, can also provide dividends to policyholders in certain products, particularly in participating life insurance. In this scenario, policyholders may receive dividends based on the insurer’s performance, though it is not guaranteed. Both types of companies issue dividends, highlighting their profitability and providing policyholders with a tangible return on their investment in the form of policy benefits or cash payouts. The other options, such as refunds, tax exemptions, or loan options, do not accurately describe a common benefit shared by both mutual and stock companies in the context of issuing benefits directly tied to their operational performance and policies.