Question

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

1) Mutual
2) Reciprocal
3) Nonprofit service organization
4) Stock

Answer 1

The insured probably bought a policy from a mutual insurance company, which pays dividends to policyholders when there are excess profits. However, dividends are not guaranteed and can change yearly depending on the insurer's financial performance.

Step-by-step explanation:

The insured who received a dividend check from the insurance company likely purchased a policy from a mutual insurance company.

Mutual insurers are owned by the policyholders, and when there are excess profits, these may be distributed back to the policyholders in the form of dividends, which are typically not taxable. These dividends are not guaranteed and can vary from year to year based on the company's financial performance, which includes income from both insurance premiums and investment income. If the insured did not receive a dividend check this year, it may be due to the insurer's decision based on their current financial status, investment returns, or other business considerations.