Insurance is generally a subject that 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 products the company sells. So when you say life insurance company or health insurance company, you are simply 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 a domestic in California and a foreign company in all other states.
2. Foreign – This type of insurance company is also a domestic company, since it is domiciled in one state but is licensed to do business in another state. For example, a company domiciled in California that does business in Nevada is a foreigner in Nevada but can do business in Nevada because it has met the licensing requirements.
3. Foreign – This type of insurance company is often confused with a foreign insurance company. The Alien society is one that is constituted 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 a foreign company in this country. However, if you have the proper license, you can do business in the United States.
4. Authorized (Admitted) and Unauthorized (Not Admitted): When applying for approval to do business in a state, the insurance company receives a certification of authority from the state Department of Insurance (Division). Once they receive this certificate, they are known as an admitted or authorized company. Companies without a certificate of authority are known as unsupported or unauthorized companies. A note of caution before buying insurance. You should always know if the company is admitted/authorized. Otherwise, your claim may not be accepted.
5. Corporation – As the name implies, a corporation is an insurance company that is owned by shareholders. These holders own the share capital 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 that the company insures.
7. Reciprocal Company (Appraisal): Unincorporated associations of individuals or businesses, called underwriters, participate in cooperative insurance programs. Each policyholder is insured by all the others, and each insures the others. Coverage is exchanged on a reciprocal basis.
8. Fraternal Benefit Society – This type of social organization has charters that allow it to sell insurance to its members. The company has no share capital, is non-profit and is organized for the benefit of the partners.
9. Lloyd’s Insurer: Lloyd’s is a household name and is considered by most people to be an insurance company. The truth is that it is not. It is a group of people organized in unions or groups with the purpose of underwriting risks. Lloyd’s operates on many of the same principles as a stock exchange in that it matches buyers who want to insure insurance with sellers who want to underwrite risk.
By the way, each insurance company sets its own rates and you must first get approval from the Insurance Commissioner in the state you want to sell to. This is why you can get a wide disparity in premium quotes for the same coverage. It pays to shop around for the best possible price BEFORE purchasing any type of insurance.