
Advance Premium Mutual
An advance premium mutual insurance company that assesses premiums in advance at an amount that does not change for a stated period of time. Other types of mutual insurers are called friendly societies and operate outside the U.S. A friendly society, also known as a mutual society, benevolent society, or fraternal organization is a mutual association set up for insurance, pensions, savings or cooperative banking. The sole purpose of a mutual insurance company is to provide insurance coverage for its members and policyholders, and its members are given the right to select management. An advance premium mutual insurance company that assesses premiums in advance at an amount that does not change for a stated period of time. Fraternal mutuals are mutual insurance companies that provide life and accident and health insurance to people who are members of social or religious organizations.
DEFINITION of Advance Premium Mutual
An advance premium mutual insurance company that assesses premiums in advance at an amount that does not change for a stated period of time. This is different from an assessment insurer which assesses policyholders their premiums based on actual loss and expense experience of the company.
BREAKING DOWN Advance Premium Mutual
Advance premium insurers and assessment insurers are specifically identified in various state laws and have different statutory requirements in the operation of their businesses. Mutual companies are also sometimes referred to as cooperatives. A mutual insurance company is owned by policyholders. The sole purpose of a mutual insurance company is to provide insurance coverage for its members and policyholders, and its members are given the right to select management. Federal law, rather than state law, determines whether an insurer can be classified as a mutual insurance company.
Operating Structures
This type of insurer is unlike an assessment mutual, which can charge higher premiums if claims and expenses are greater than projected. An assessment mutual is a rare structure for an insurer because additional premiums or levies may be hard to collect once the coverage as been provided.
The more common structure is the advance premium mutual. In this case, higher premiums or levies aren't sought for policies already in force. Any higher than expected losses or expenses can be paid for out of its surplus, which is the difference between income and expenses. The insurer would review the premium for future renewals and make any increases at that time. Under this type of insurer, excess surpluses, if any, can be returned either as a payout to members or as a reduced premium.
Other types of mutual insurers are called friendly societies and operate outside the U.S. A friendly society, also known as a mutual society, benevolent society, or fraternal organization is a mutual association set up for insurance, pensions, savings or cooperative banking. Like advance premium insurers, members make up any losses and share in dividends.
Fraternal mutuals are mutual insurance companies that provide life and accident and health insurance to people who are members of social or religious organizations. Some of these may operate under the umbrella of larger insurance companies.
Factory mutuals were originally established as commercial property insurers to insure factories and industrial sites. These mutuals came into being in certain industries where the cost of insurance is high and special expertise is needed to understand the business and its risks.
Related terms:
501(c)
501(c) is a designation under the United States Internal Revenue Code that confers tax-exempt status to nonprofit organizations. read more
Against All Risks (AAR)
An against all risks insurance policy provides coverage against all types of loss or damage, rather than only specific ones. read more
Clash Reinsurance
Clash reinsurance provides risk management for primary insurers who may receive multiple claims from policyholders resulting from a single event. read more
Insurance Coverage
Insurance coverage is the amount of risk or liability covered for an individual or entity by way of insurance services. read more
Mutual Company
A mutual company is a private enterprise that is owned by its customers or policyholders. The most familiar of these are insurance companies. read more
National Organization of Life & Health Insurance Guaranty Associations (NOLHGA)
National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) covers policyholders when a multi-state insurance company fails. read more
Premium
Premium is the total cost of an option or the difference between the higher price paid for a fixed-income security and the security's face amount at issue. read more
Surplus
Surplus is the amount of an asset or resource that exceeds the portion that is utilized. Read about the reasons for surplus and its economic impact. read more
Takaful
Takaful is a type of Islamic insurance that allows individuals to pool their money together to insure against losses or damages. read more
Voluntary Accidental Death And Dismemberment Insurance (VAD&D)
Voluntary accidental death and dismemberment insurance (VAD&D) pays cash in the event the policyholder is killed or loses a specific body part. read more