State Farm is an insurer which, according to the policy contract, hast he option to charge...

State Farm is an insurer which, according to the policy contract, hast he option to charge a policyholder more premium at the end of the year if the company has a bad loss year. It is owned by policyholders. State Farm is a
A) stock insurance company.
B) part of Lloyds of London.
C) mutual insurance company.
D) fraternal insurance company.

Solutions

Expert Solution

A mutual insurance company is owned by policyholders. The sole purpose of a mutual insurance company is to provide insurance coverage for its members and policyholders, and its members are given the right to select management. Members of a mutual insurance company have the right to excess premiums, meaning that if losses and expenses are less than the amount of premiums paid into the company, the members would receive either a dividend payment or a reduction in premiums. In general, the goal of the mutual insurance company is to provide its members insurance coverage at or near cost, since any dividends paid back to members represent excess premium payments.
Similarly if premium collected at beginning of the year is not sufficient to meet total cost obligation end of the year, members are requested to pay additional premium to cover up the cost.

Given the description and characteristic of State farm which has a right to collect additional premium end of the year if company has a bad loss, State farm is a mutual insurance company

STATE FARM IS A MUTUAL INSURANCE COMPANY

keosha answered 2 years ago

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