Insurance is generally a topic people don’t like to think about until they need it. Who can blame them, right?
People also don’t know that the law has 9 different categories of companies. These categories are not derived from the product(s) the company sells. So when you say life insurance company or health insurance company, you are merely stating the type of product the company sells. You are not talking about its legal structure.
The 9 types of insurance companies are:
1. Domestic – This type of insurance company is incorporated and formed under the laws of the state in which it is domiciled. For example, a company incorporated in California is domestic to California and is foreign to the other states.
2. Foreign – This type of insurance company is also domestic company as it is domiciled in one state but it is licensed to do business in another state. For example, a California domiciled company doing business in Nevada is foreign to Nevada but can do business in Nevada because it met the licensure requirements.
3. Alien – This type of insurance company is often confused with a Foreign insurance company. The Alien company is the one that is formed under the laws of a country other than the United States. For example, a company organized under the laws of Canada and doing business in the United States would be an Alien company in this country. However, if it is properly licensed, it can do business in the United States.
4. Authorized (Admitted) and Unauthorized (Unadmitted) – Upon applying for approval to do business in a state, the insurance company receives a certification of authority from the state Insurance Department (Division). Once they receive this certificate they become known as an admitted, or authorized, company. Companies without a certificate of authority are known as unadmitted, or unauthorized, companies. A note of caution before buying insurance. You should always learn if the company is admitted/authorized. Otherwise, they may not honor your claim.
5. Stock Company – As the name implies, a stock company is an insurance company that is owned by the shareholders. These holders own the capital stock of the company and most are publicly traded on an organized exchange.
6. Mutual Company – This type of company is owned by the people and/or businesses the company insures.
7. Reciprocal (Assessment) Company – Nonincorporated associations of individuals or business, called subscribers, engage in cooperative insurance programs. Each policyholder is insured by all others, and each insures the others. Coverage is exchanged on a reciprocal basis.
8. Fraternal Benefit Society – This type of social organization has bylaws allowing it to sell insurance to its members. The society has no capital stock, is not for profit, and is organized for the benefit of the members.
9. Lloyd’s Insurer – Lloyd’s is a very well known name and most people think of it as an insurance company. The truth is, it isn’t. It is a number of people organized into syndicates or groups for the purpose of underwriting risks. Lloyd’s operate on many of the same principles as a stock exchange in that it matches buyers wishing to secure insurance with sellers who wish to underwrite risks.
By the way, each insurance company sets its own rates and must first get them approved by the Insurance Commissioner in the state in which they wish to sell. This is why you can get a wide disparity in premium quotes for the same coverage. It pays to shop for the best possible price BEFORE you purchase any type of insurance.