Question

If an insurance company treats its policyholders as customers and does not share profits directly with them, it must be organized as a ________ company?

1) Mutual
2) Stock
3) Non-profit
4) Government

Answer 1

A stock insurance company does not share profits with policyholders; instead, profits are given to shareholders as dividends.

Step-by-step explanation:

If an insurance company treats its policyholders as customers and does not share profits directly with them, it must be organized as a stock company.

Unlike mutual companies, which are owned by the policyholders who may receive dividends or rebates as a form of profit sharing, stock insurance companies are owned by shareholders.

In stock companies, any profits are generally distributed to shareholders in the form of dividends and not to policyholders.

Government and social insurance programs, on the other hand, operate differently, offering coverage generally not based on profit but on social welfare. Similarly, non-profit health organizations are driven by a mission rather than profit-making.