Chapter Two: Types of Insurers

A nonparticipating insurer is:

A stock insurer Stock insurers are called nonparticipating because policyholders do not participate in the profits of the company. Instead, stockholders partake in the profits and losses and receive dividends.

Mutualization occurs when:

A stock insurer becomes a mutual insurer Mutualization occurs when a stock insurer becomes a mutual insurer, while demutualization is when a mutual insurer becomes a stock insurer.

Which of the following insurers cannot be categorized as commercial?

BlueCross BlueShield BlueCross BlueShield organizations are noncommercial organizations. However, they are not technically insurers and are better described as service organizations.

The types of insurers who pay dividends include:

Both stock and mutual companies Stock companies pay dividends to stockholders, and mutual companies pay dividends to policyholders. Fraternals do not pay dividends.

Which type of insurer/organization is in the business of insurance to make a profit?

Commercial Commercial insurers are in the business of insurance to make a profit. Government and noncommercial insurers are not in the business to make a profit. BlueCross BlueShields are types of noncommercial insurers called 'service insurers,_ and are specifically not-for-profit.

Which of the following is true regarding dividends paid by mutual insurers?

Dividends are not taxable, but are considered a return of overcharged premium. Dividends paid out from mutual insurers are considered a non-taxable return of overcharged premium, whereas dividends paid out from stock insurers are simply the profits experienced by the company.

Which of the following best describes an insurer that is a charitable organization providing insurance only to its members?

Fraternal benefit society Fraternals are religious, ethnic or charitable organizations that provide insurance to their members.

Which of the following statements best describes the taxation of insurance issued by fraternals?

Fraternals are exempt from federal income tax and state premium tax. Fraternal benefit societies are exempt from federal income tax and state premium tax because they are categorized as charitable organizations.

BlueCross pays:

Hospital costs BlueCross health plans pay for hospital costs.

All of the following are characteristics of mutual insurers, EXCEPT:

May transform into a stock insurer through the process called mutualization Transformation of a stock insurer into a mutual insurer is termed mutualization, and the reverse (transformation of a mutual insurer into a stock insurer) is termed demutualization.

BlueShield pays:

Medical and surgical costs BlueShield health plans pay for medical and surgical costs.

What are the two distinct characteristics that distinguish mutual insurers from stock insurers?

Mutual insurers lack capital stock and profits are distributed among the members. Mutual insurers are distinct from stock insurers in two primary ways: they lack capital stock, and profits are distributed among their members _ the policyholders.

ABC company pays its stockholders dividends. ABC undergoes a change in company ownership and begins to pays its policyholders dividends, instead of its stockholders. What is the term that describes the transformation that ABC company has undergone?

Mutualization Mutualization is the transformation of a stock insurer into a mutual insurer.

Which of the following insurers/organizations are not technically insurance companies?

Noncommercial organizations Noncommercial insuring organizations are not technically _insurers_ and are better described as service organizations that provide prepaid health plans for medical, surgical, and hospital expenses.

Another term for a stock insurer is:

Nonparticipating Traditionally, stock insurers have been called nonparticipating insurers because policyholders do not participate in the profits of the insurer, and thus do not receive dividends. The stockholders receive dividends. The correct answer is: Nonparticipating

A mutual company pays dividends to:

Policyholders Dividends are considered a return of overcharged premium. Mutual companies pay dividends to policyholders.

All of the following are false regarding stock insurers, EXCEPT:

Stock insurers are managed by a board of directors, who are chosen by the company stockholders. Stock insurers have a capital fund, surplus and reserves which are financially supported by the company's stockholders. Stock insurers do pay dividends to their stockholders. Unlike mutual insurers, stock insurers do not pay dividends to policyholders. Stock insurers are managed by a board of directors, who are chosen by the stockholders. Finally, the process of mutualiztion occurs when a stock insurer is transformed into a mutual insurer.

What is the term used for an insured covered under a BlueCross BlueShield health plan?

Subscriber Insureds under noncommercial insuring organizations are termed 'subscribers._

Fraternal benefit societies are described by all of the following, EXCEPT:

They include stock and mutual companies. Fraternals are religious, ethnic or charitable organizations that provide insurance to their members.

Which of the following best describes mutualization?

When a stock insurer becomes a mutual insurer Mutualization occurs when a stock insurer becomes a mutual insurer; demutualization is when a mutual insurer becomes a stock insurer.