Question

Group health plans that are issued by mutual companies usually provide dividends, which are most likely to be paid if __________________ are less than anticipated.

a) Premiums
b) Profits
c) Claims
d) Tax deductions

Answer 1

Group health plans provided by mutual companies pay dividends when claims are lower than anticipated. These dividends arise from a surplus created by the lower-than-expected claims against the premiums collected.

Step-by-step explanation:

Group health plans that are issued by mutual companies usually provide dividends, which are most likely to be paid if claims are less than anticipated. The correct answer is c) Claims.

An insurance company receives income through premiums and investments. When the claims—that is, the money paid out for insured events—are less than what the insurance company anticipated, the company may have a surplus. This surplus can sometimes be returned to the policyholders in the form of dividends, especially if the insurance is provided by mutual companies, which are owned by the policyholders themselves.

Dividends can also be influenced by the company's profits, but these are not directly related to the payment of dividends in the context of insurance claims. Charging a group an actuarially fair premium ensures that the premium matches the expected cost of claims for that group, but when the actual claims are lower than expected, the surplus may result in dividends. However, these dividends are not guaranteed and depend on the mutual company's financial performance and policies.