For example, a mutual life insurance company might sell life insurance at one specific age for $20 per $1,000 of face amount. Once a dividend has been declared, each policyowner might then receive credit on the premium statement in the amount of $2 per $1,000. Thus, the ultimate cost for the insurance is $18 per $1,000 of face amount.
The term participating means that if the company realizes a savings in death claims due to a lower mortality rate, or an increase in the interest earned, or if it realizes some efficiency in its operation which reduces expenses, these savings or profits are passed along to the policyowner in the form of policy dividends. Thus, the policyowner in a mutual why not try this out life insurance company participates in any savings or profits enjoyed by the company.
Insurance agents should not imply to clients that a stock company is better from an organizational standpoint than a mutual company, or vice versa, or that participating policies are better than nonparticipating ones. Both types of companies and both policies are acceptable.
Before any life insurance company can sell insurance in any state, it must be licensed to sell insurance or, as it is called, admitted to that state. An insurer that is admitted to a state is authorized to do business in that state. If an insurer is not admitted to a state, it is unauthorized to do business in that state.
Fraternal Benefit Society
Another type of insurer with which you should be familiar is the fraternal benefit society, also known as a fraternal. A fraternal insurer is a social and benevolent organization, which provides, among other services, life insurance benefits for members.
Each state defines and provides for the regulation of fraternal benefit societies in its insurance laws. But, although the exact definition of a fraternal may differ from state to state, an organization usually must have certain characteristics to qualify as a fraternal benefit society. First, the organization generally must exist only for the benefit of its members and of their beneficiaries and be non-profit. Second, it must be organized without capital stock.
A third characteristic is that the society usually must be organized on a lodge system. This means that the organization must have local lodges or chapters, which hold regular meetings to carry on the activities of the society.
Finally, the organization must have a representative form of government. There must be a governing body chosen by the members directly or by delegates, in accordance with the organizations bylaws or constitution.
Government Insurance Programs
Government Insurance Programs have been established for a variety of reasons throughout history. Social insurance programs have been created to allow the government to make compulsory a program lacking equity in order to cover fundamental risks and to redistribute income. Government insurance programs have been created when private insurers would have been subjected to adverse selection or were incapable of meeting societys needs.
By its administration of various Federal insurance programs, the U.S. government has become the largest insurer in the world. These various programs include Social Security, Medicare, and the railroad retirement, disability, and unemployment programs.
Reciprocals are groups of individuals (called subscribers) who are insured under an arrangement where each subscriber is both an insured and an insurer. In other words, the other members of the group insure each subscriber. However, the liability of each subscriber is limited.
The administrator of the reciprocal is the attorney-in-fact. He or she is granted this power by the subscribers through a broad power of attorney and receives a percentage of the gross premiums paid by the subscribers. Other than this payment to the attorney-in-fact and administrative expenses, the cost to the reciprocal is limited to the amount of the losses that occur. Any unused premiums are returned to the subscribers.