What type of insurance company is owned by policyholders with dividends that are nontaxable?

Mutual companies are owned by their policyholders, meaning that the individuals who purchase insurance policies effectively share ownership of the company. In a mutual company, profits generated by the company can be distributed to policyholders in the form of dividends. These dividends are considered a return of premium rather than taxable income, making them nontaxable. This characteristic is a key benefit of mutual companies, as it aligns the financial interests of the company and its policyholders.

In contrast, stock companies are owned by shareholders and operate primarily to generate profits for those shareholders, which can lead to taxable dividends. Foremost companies and commercial companies do not specifically pertain to the structure of ownership as mutual companies do, and therefore do not offer the same nontaxable dividend benefit to policyholders. The nature of mutual companies and their direct relationship with policyholders is what solidifies B as the correct answer in this context.