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Difficulty: EasyTypes of Insurers

Horizon Insurance operates as an incorporated entity where the policyholders themselves are the owners. These policyowners elect the board of directors and may receive a non-taxable return of premium if the company has a surplus of funds.

Based on this ownership structure, what specific type of entity is Horizon Insurance?

  1. Mutual insurerAnswer
  2. B
    Stock insurer
  3. C
    Reinsurer
  4. D
    Guaranty Association

Answer

Mutual insurer
The correct answer accurately identifies that an incorporated insurance company owned by its policyholders, who elect the board of directors and share in surplus funds via non-taxable dividends, is a mutual insurer.

Step-by-Step Solution

1
Analyze the ownership structure described in the scenario.
The scenario states that the entity is owned by its policyholders.
Ownership is the primary differentiator between major types of incorporated insurers.
2
Evaluate the dividend distribution method.
The entity distributes surplus funds as a non-taxable return of premium.
This confirms the structure, as policyholder dividends are considered a return of overcharged premium.
3
Match the characteristics to the correct insurer classification.
Ownership by policyholders and non-taxable dividends define a mutual insurer.
This distinguishes it from stock companies, which are owned by shareholders.

Key Concept

Stock vs. Mutual Insurers
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Topics

Types of Insurers

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