Insurance company Operating Objective

The first part of the chapter explains how insurance companies came together. The second part of the chapter, we will talk about the distribution method, how the insurance gets from the company to the people.

Types of Insurers

MR. WATSON: There are two types of insurance providers, private insurers or government insurers. If it is not private, what is it? Government. If it is not government, what is it?

STUDENTS: Private.

MR. WATSON: Social security?

STUDENTS: Government.

MR. WATSON: State Farm?

STUDENTS: Private.

MR. WATSON: What about a company that sells one line of insurance? What is a line of insurance? Like auto insurance, or health insurance. A company that just sells one line of insurance is a mono-line company. What does mono mean? One. If you get mononucleosis, how many nuclei do you have? One.

MR. WATSON: What about a company that sells more than one line? What is that called?

STUDENTS: Multi-line.

MR. WATSON: It is multi-line. So it is either mono-line or multi-line. It is either private or government. Everybody's got it? Okay.

MR. WATSON: Now, let's talk about how insurance companies are organized. We are not talking about mutual funds. We are talking about insurance companies. On this side we have stock companies. On the other side we have mutual companies.

Stock Insurers

• Stockholders own the company
• Profits (taxable dividends) to stockholders
• Sell non-participating policies (meaning the dividends are not paid to policyholders)
• Can sell both participating and non-participating policies. When a stock company sells both par & non-par policies they are operating on a "mixed-plan."

Mutual Insurer

• Policyholders own the company
• Profits returned to the policyholders
• Dividends are NOT taxable (a return of premium)
• Premiums slightly higher than stock insurers