Minnesota Life Insurance License Practice Exam

Which form of insurance has shareholders?

1. Mutual company

2. Stock company

3. Fraternal benefit society

4. Insurance pool

The correct answer is: Stock company

A stock company is an entity that is owned by shareholders who invest in the company by purchasing stock. The primary objective of a stock insurance company is to generate profit for these shareholders, which may come in the form of dividends or an increase in the value of their shares. Shareholders have certain rights, including the ability to vote on company matters and influence decisions based on their ownership stake. In contrast, a mutual company does not have shareholders; instead, it is owned by its policyholders, who are essentially stakeholders in the company. This means that any profit generated may be returned to policyholders in the form of dividends or reduced premiums, rather than being distributed to external shareholders. Fraternal benefit societies typically operate on a non-profit basis and are owned by their members, with the aim of providing mutual aid and benefits to members rather than maximizing shareholder profit. Insurance pools involve a collective method of sharing risk among multiple insurers or entities and do not have a stock or ownership structure like a stock company does. Thus, stock companies are uniquely characterized by having shareholders, which distinguishes them from these other forms of insurance organizations.