Alabama Insurance Adjuster Practice Exam

What is the term for a contract that guarantees specific benefits to its members?

1. Mutual Policy

2. Fraternal Benefit Contract

3. Insurance Trust

4. Benevolent Association

The correct answer is: Fraternal Benefit Contract

The term that describes a contract guaranteeing specific benefits to its members is a fraternal benefit contract. This type of contract is typically associated with fraternal organizations that provide insurance benefits to their members as part of their commitment to mutual aid and community. Members of these organizations usually share a common bond, such as membership in a particular group or a shared philosophy. Fraternal benefit contracts often include various types of insurance coverage, including life and health benefits, and they may provide financial support for specific events, such as funerals or medical emergencies. The unique aspect of these contracts is their focus on serving the members of the fraternity or society rather than pursuing profit, which distinguishes them from traditional insurance policies. In contrast, a mutual policy generally refers to insurance provided by mutual insurance companies, where policyholders are also the members and may benefit from dividends. An insurance trust is a legal arrangement where a trustee manages assets for the benefit of the trust's beneficiaries, which doesn't inherently provide guaranteed benefits like a fraternal benefit contract. Lastly, a benevolent association typically engages in charitable activities and may provide some degree of assistance to members, but it does not define a specific contractual benefit in the same way as a fraternal benefit contract.