Mutual Life Insurance

There are two types of life insurance companies: publicly traded (also known as stock companies) and mutual companies. Mutual life insurance companies are completely owned by policyholders and are not traded on the stock market.

These companies are at a disadvantage when they need capital for growth since most of their end of year profits are distributed as dividends to participating policyholders. This is the reason many mutual companies have decided to change their status to stock companies.

Who Has Ownership Rights?

As a rule, only policyholders with permanent policies have ownership rights in a mutual company. Term life policies are generally not considered permanent and do not pay any dividends.

Publicly-traded companies have to pay dividends not only to permanent policyholders, but also to investors who own stock in the company. Since mutual companies have no investors or shareholders, all of the dividends are paid to the policyholders.

Here is a list of popular mutual insurance companies:

  • American Family Insurance
  • Ameritas Life Insurance Company
  • Liberty Mutual
  • Massachusetts Mutual Life Insurance Company
  • Nationwide Mutual Insurance Company
  • New York Life
  • Northwestern Mutual
  • PEMCO
  • Penn Mutual
  • Sentry Insurance
  • State Farm Insurance
  • USAA

Which Type Is Better?

Both publicly-traded and mutual companies offer the same life insurance benefits. The difference is in the way the dividends are paid and some publicly-traded companies may pay higher dividends than some mutual companies.

If whole life insurance is being purchased as an investment, it is best to check the financial performance of the insurance company over recent years to determine which one is likely to pay the best and most consistent dividends.

How Does A Policy Pay?

All life insurance has a death benefit which is payable to a named beneficiary when the insured person dies. Whole life insurance also has a cash value which increases over time and may be withdrawn from the policy, resulting in a cancellation.

Policyholders can opt to cash out their dividends each year instead of reinvesting them. The cash value can be used as collateral for a business or personal loan, but the death benefit is reduced by the outstanding balance on the loan.

The Death Benefit vs. Cash Value

If the insured person dies, the policy pays only the death benefit. The cash value counts as the premium used to cover the company’s cost. If the company refuses to pay the death benefit because the cause of death was not covered, the policy application contained a material misrepresentation, or fraud was used to obtain the policy, your carrier may have to return the cash value to the policyholder’s estate. Life insurance companies do not pay both the death benefit and the cash value.

When Can The Death Benefit Be Denied?

All policies have exclusions which may include suicide, death while committing a criminal act (felony) and members of the armed forces killed during combat. A lie on the insurance application of such a nature that the company would not have issued the policy if they had known the truth (material misrepresentation) is grounds for denial of coverage. If a beneficiary is criminally responsible for the death of the insured he cannot collect on the policy.

Can Someone Purchase Life Insurance For Another Person?

If an individual has a financial or compelling interest in the life of another person, they can purchase a life insurance policy for that person. A wife may buy a policy for a husband, grandparents may buy a policy for a grandchild or a business owner may buy a policy for his partner.

As a rule, the person buying the policy cannot be named as beneficiary. A business owner can name the business as beneficiary or a wife may name her children as beneficiaries.

Common Exclusions

There is usually a two-year exclusion for suicide, but once the two years have elapsed, suicide becomes a covered cause of death. Individuals engaged in high risk hobbies like rock climbing, car racing and sky diving may find accidental as a result of these particular activities is excluded on the policy. Most policies also exclude death resulting from a private plane crash from reimbursements as well.

Conclusion on Mutual Insurance and Companies

Both mutual and publicly-traded insurance companies offer similar coverage and investment opportunities. The most important part of choosing the right life insurance company is to choose one with a good reputation and a stable financial history.

By comparing policy coverage, companies, and premiums, consumers can make certain they buy the best protection for their family’s needs.