A fraternal benefit society is best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A fraternal benefit society is a member-owned, nonprofit organization that issues life and health insurance to its members, who typically share a common bond such as religion, ethnicity, occupation, or another affinity. It operates through a lodge system with elected officers and social activities, and any surplus generally benefits members rather than outside investors. Fraternal insurers are subject to their own statutory framework and may be exempt from some requirements that apply to commercial insurers. Because membership and the common bond are central, fraternal insurance is sold to members who join the society, not to the general public.
Why the other options are wrong
- B) Fraternal societies are member-owned nonprofit organizations, not stock companies, and they write life and health coverage for members rather than only annuities. A fraternal society's nonprofit, member-owned structure sets it apart from the for-profit stock company model.
- C) A government agency that guarantees bank deposits describes the deposit insurance function of agencies such as the FDIC, not a private fraternal benefit society. Bank deposit guarantees are a government function, whereas fraternal societies are private member organizations issuing insurance under their own laws.
- D) Fraternal societies are admitted insurers operating in the ordinary market under their own statutory framework; they are not limited to surplus line business. Fraternal insurers sell to members through their society structure and are not restricted to the surplus line market at all.
Memory hook
Fraternal = insurance wrapped in a lodge: members, a common bond, and shared surplus.