Definition of "Proprietary insurer"

Liz English real estate agent

Written by

Liz Englishelite badge icon

Coldwell Banker Advantage-Southern Pines

The term proprietary insurer may seem like a tongue-twister and a mind-twister in itself. It kind of is. But what is the definition of a proprietary insurer? A proprietary insurer is a for-profit insurance company specializing in insuring high-risk items.

Mutual vs. proprietary companies

People often mistake proprietary and mutual insurance companies. On the one hand, a mutual or joint organization encompasses owners and clients who are virtually the same individuals. In other words, customers can also be the company’s proprietors. We call life assurance companies, insurance societies, or even credit unions a mutual company. Their members enjoy the same amount of voting power, regardless of their investment in the organization. 

On the other hand, shareholders own proprietary organizations, such as limited companies and banks. Shareholdings determine the voting rights of a proprietary company. 

Premiums and profits

The so-called Deed of Settlement brought mutual companies into existence. They could also register under the Companies Acts. These types of organizations belong to policyholders, who share the revenue and income. At the same time, shareholders at proprietary companies collect their profits in dividends and premiums. In contrast, the policyholder owner at the mutual company may obtain a more significant life assurance and smaller bonuses.

Mutual and proprietary companies can issue dividends. Still, the government considers dividends a profit on the premium at mutual companies. They will not tax policyholders. However, they believe dividends as income subject to tax proprietary insurance companies.

One cannot tell about a company based on their names, whether mutual or proprietary. Organizations originally established as mutual are now registered as proprietary companies in various instances.

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