This lesson focuses on the following topics:
• MORE POLICY CLAUSES
• INSURANCE COMPANIES
o INTRODUCTION
o STOCK LIFE COMPANY
o MUTUAL INSURANCE COMPANY
o RECIPROCALS
o LLOYD’S OF LONDON
o REINSURERS
o RISK RETENTION GROUP
o OTHER ENTITIES

Change of Plan Provision

The Change of Plan Provision allows the policy owner to exchange the present policy
for a different one. If the change is to a higher premium plan, such as exchanging an
ordinary life policy for an endowment at age sixty-five, the policy owner must pay the
difference in cash values between the two contracts plus interest at a stipulated rate.
Important Points
• If the net amount at risk is reduced, evidence of insurability is not required.
• If the net amount at risk is increased, evidence of insurability is required.
INSURANCE COMPANIES

Introduction

A simple way to understand life insurance companies is to see how they are structured:
• Stock Life Companies
• Mutual Companies
• Reciprocal Insurers
• Lloyd’s of London
• Reinsurers
• Risk Retention Group
• Assessment Mutual Insurers
• Fraternal Benefit Societies
• Service Insurers
• Home Service Insurers

Stock Life Company

A stock life insurance company, as the name suggests, has stockholders. These people
may or may not also be policy owners. They each own shares in the company in the
form of stocks, and they elect a board of directors to guide the operation of the
company. If the company is successful financially, the stockholders receive dividends,
which are paid per share of stock owned.
Important Point: A stock life insurance company, like all other corporations, is in
business to make a profit for the stockholders.
Mutual Insurance Company
A mutual insurance company is also a corporation, and it derives its name from its basic
ownership characteristic. Control in a mutual company rests with the policy owners who
'mutually" own the company. The policy owner’s elect a board of directors, and any
"profits" are returned as dividends to the policy owners in the form of reduced costs for
insurance. It should be mentioned here that dividends from a mutual company are not
profits in the mercantile or commercial sense but rather the return of an “overcharge” of
premium.

EXAMPLE: 

A mutual life insurance company might sell life insurance at one
specific age for $15 per $1,000 of face amount. Once a dividend has been
declared, each policy-owner might then receive credit on the premium statement
in the amount of $2 per $1,000. Thus, the resultant cost for the insurance is $13
per $1,000 of face amount.
Reciprocals
These are arrangements where a group of people agree to insure each other; i.e. each
member is both an insurer and an insured simultaneously. In these arrangements, the
liability of each subscriber is limited.
Lloyd’s of London
Lloyd’s of London is an association of companies and individuals that individually
underwrite insurance. They are not an insurer.
Reinsurers
Companies that transfer the risk from other insurers to themselves are known as
reinsurers and the company transferring the risk is known as the ceding company.
Risk Retention Group
A mutual insurance company formed by people in the same line of business, occupation
or profession.
Fraternal Benefit Societies
A nonprofit lodge system. Its products can only be sold to its members. Products are
similar to commercial insurers.
Service Insurers
These are the Blue Cross, Blue Shield, HMO and PPO health carriers.
Home Service Insurers
These insurers sell the smaller face amount policies, known as industrial policies. They
are known as debit insurers.
Other Entities
Government Insurance Programs
Government programs were created to cover basic risks and redistribute income
where private insurers were unable to meet society’s needs. By virtue of
sponsoring programs like Social Security, Medicare and Unemployment
Programs, the US government is the largest insurer in the world.