Life License Qualification Program (LLQP) Practice Exam

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Who is responsible for electing the governing body of a mutual insurance company?

  1. Chairman of the board

  2. Bondholders

  3. Stockholders

  4. Policyholders

The correct answer is: Policyholders

The governing body of a mutual insurance company is elected by the policyholders. This structure is characteristic of mutual insurance companies, which are owned by the individuals who hold the policies. By being the owners of the company, policyholders have the right to participate in important decisions, including the election of the board of directors or governing body, thereby ensuring that their interests are represented in the management of the company. This direct participation of policyholders distinguishes mutual insurance companies from stock insurance companies, where stockholders, or shareholders, have this voting right. In a mutual insurance company, the emphasis is on serving the needs of policyholders rather than generating profits for investors. While the chairman of the board and bondholders may play significant roles within the structure of the company, they do not have the authority to elect the governing body. Stockholders, by definition, are associated with stock companies, making them irrelevant in the context of mutual insurance. Hence, the responsibility lies solely with the policyholders, reinforcing the mutual principle of ownership and cooperation in serving the needs of members.