Life & Health Insurance Practice Exam

Which type of insurer is primarily created by a corporation to manage its own risks?

1. Admitted Insurer

2. Foreign Insurer

3. Captive Insurer

4. Mutual Insurance Company

The correct answer is: Captive Insurer

A captive insurer is specifically established by a corporation to manage its own risks. This type of insurer allows the parent company to create an insurance entity that provides specialized coverage tailored to the unique risks it faces. By setting up a captive insurer, companies can have more control over their insurance programs, potentially lower their overall insurance costs, and retain premiums within the organization rather than paying them to an external insurer. Captive insurers can be particularly beneficial for companies with specific risk profiles that may be difficult to insure through traditional methods, allowing them to create customized policies that suit their operational needs. This approach also provides the flexibility to adapt coverage as the company's risks evolve. In contrast, the other options serve different purposes. An admitted insurer is one that is licensed to operate in a particular state and adheres to specific regulatory requirements. A foreign insurer operates in a state different from its state of incorporation. A mutual insurance company, on the other hand, is owned by its policyholders, who share in the profits and can participate in governance, but it does not typically exist specifically to manage the risks of one corporation.