Texas Personal Lines Insurance Practice Exam 2025 - Free Personal Lines Insurance Practice Questions and Study Guide

The insured received a non-taxable dividend check, which indicates that the policy was purchased from a mutual insurer. Mutual insurers operate on a policyholder basis; they are owned by the policyholders themselves rather than by shareholders. As a result, any profits generated by the mutual insurer can be returned to policyholders in the form of dividends.

Dividends from mutual insurers are not subject to income tax, as they are considered a return of excess premium rather than income. This is a significant distinguishing feature, as stock insurers, which are owned by shareholders, typically do not issue dividends to policyholders in the same way. Instead, any profits that might be distributed are normally allocated to shareholders. In contrast, reciprocal and fraternal insurers have their own unique structures and purposes, but they do not universally provide non-taxable dividends like mutual insurers do. Therefore, the characteristics of mutual insurers align with the situation described, confirming that the insured received the dividend from a mutual insurer.