Question

Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is a:

A) Stock company
B) Mutual company
C) Fraternal company
D) Reciprocal company

Answer 1

A mutual company is the type of insurance company organized to return surplus money to its policyholders. They are unique as they are owned by the policyholders, and generate revenue through insurance premiums and investment income.

Step-by-step explanation:

The type of insurance company organized to return any surplus money to their policyholders is known as a mutual company. These companies are distinctive as they are owned by the policyholders themselves, rather than outside investors or stockholders. The mutual company model aligns the interests of the policyholders and the company, as any profits earned, after covering the operating costs and claims, may be redistributed back to the policyholders in the form of dividends or reduced future premiums.

Insurance companies generate revenue through insurance premiums and investment income. They invest in reserves from past premium payments that were not used to pay out claims. These investments are typically in safe, liquid assets so that the company can respond effectively to claims following major disasters.