How are dividends handled in a stock insurer compared to a mutual insurer?

In the context of insurance, the distinction between stock insurers and mutual insurers is crucial for understanding how dividends are handled. Stock insurers are owned by shareholders and typically issue non-participating policies. This means that the policyholders of stock insurers do not receive dividends based on the insurer's profits. Instead, any profits generated are distributed to the shareholders in the form of dividends.

On the other hand, mutual insurers are owned by the policyholders themselves. They operate on a participatory model where policyholders are eligible to receive dividends, which are a share of the profits. These dividends are often contingent on the financial performance of the mutual insurer, and they are paid out typically to those who hold participating policies.

This fundamental difference in structure and ownership leads to the practice where stock insurers do not guarantee dividends to policyholders, while mutual insurers do, providing their policyholders with a potential financial benefit based on the company's performance. Thus, the choice correctly highlights that stock insurers issue non-participating policies, while mutual insurers generally offer participating policies that may lead to dividend payments. This understanding is essential for anyone studying the nuances of insurance types and their respective benefits.