Capital Stock Insurance Companies

Categories: Insurance, Stocks

Welcome to the wonderful world of insurance companies. On your left, you’ll see capital stock insurance companies. These companies are owned by shareholders who get the profits in dividends (though some profit may be reinvested in the company, too). A capital stock insurance company gets most of its money via the sale of shares and stocks. If you’ve ever seen publicly-traded insurance companies, they were certainly capital stock insurance companies.

On your right, you’ll see mutual insurance companies. Mutual insurance companies are owned by its policyholders (the ones on the insurance) rather than shareholders. Any extra profits can be given to policyholders via reductions in premiums or even dividends.

As you could tell by their demeanors, capital stock insurance companies are the more aggressive of the two insurance company types. Since their main goal is to earn profits for their shareholders, they’re more likely to take more risks, and make short-term investments. Mutual insurance companies are more about being on the safe side...focusing on safe, long-term investments, since they’re owned by the insurance policyholders.

And that concludes today’s tour on types of insurance companies in the wild.

Find other enlightening terms in Shmoop Finance Genius Bar(f)