Which statement correctly describes a stock insurance company organized under the Texas Insurance Code?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under the insurer-classification provisions of the Texas Insurance Code (TIC 547.001 governing stock companies and TIC 801.001 governing mutual companies), a stock insurer is a capital-stock corporation owned by its shareholders. The shareholders furnish the capital that supports the insurer's obligations, and any profit belongs to them. Because policyholders are customers rather than owners, the contracts a stock company issues are ordinarily nonparticipating. Practically, this means an agent should not describe a stock company's policies as dividend-paying merely because the company is profitable.
Why the other options are wrong
- A) The lodge system and representative form of government are hallmarks of a fraternal benefit society under TIC 885.001-.706, not requirements for a stock insurer.
- B) That describes a mutual insurer, which has no capital stock and is owned by its policyholders rather than by shareholders.
- C) Surplus in a stock insurer belongs to the shareholders; there is no requirement that surplus be returned to policyholders at the end of each policy year.
Memory hook
Stock equals shareholders: they supply the capital and they keep the profit.