86. An Insurer that is owned by its policyholders and can pay annual dividends to them is considered a
Answer: A
An Insurer that is owned by its policyholders and can pay annual dividends to them is considered a mutual company.
A mutual company is an insurer that is owned by its policyholders, who are entitled to receive dividends based on the company's performance. This structure aligns with the principle of mutuality, where the focus is on benefiting the policyholders rather than external shareholders.
A) mutual company.
This option is correct because a mutual company is specifically designed to be owned by its policyholders. The dividends paid to policyholders are a direct reflection of the company’s profits, which are distributed among the members rather than to external shareholders. This aligns perfectly with the definition provided in the question.
B) reciprocal exchange.
A reciprocal exchange is a type of insurance arrangement where members insure each other and share the risk. While members may benefit financially, they do not own the exchange in the same way policyholders own a mutual company. Therefore, this option does not meet the criteria stated in the question.
C) fraternal society.
A fraternal society provides insurance benefits to its members, typically based on a common affiliation or interest. While these societies can issue dividends, they are not owned by the policyholders in the same way as a mutual company, making this option inaccurate for the context of the question.
D) stock company.
A stock company is owned by shareholders who may or may not be policyholders. Dividends are paid to shareholders based on profits, not directly to policyholders. This structure fundamentally differs from that of a mutual company, where ownership and benefits are tied directly to the policyholders.
Conclusion
The definition of a mutual company as an insurer owned by its policyholders directly aligns with the characteristics described in the question. Options B, C, and D fail to meet this criterion, as they represent different ownership structures that do not involve policyholders receiving dividends as mutual members do. Thus, A is the only option that accurately reflects the concept being tested.