All insurers have the same purpose: to provide financial protection for you and your loved ones. They’re all similar upfront when you compare insurance products. But on the back end, insurance providers are structured differently. Some classify as stock insurers, others are policyholder-owned mutual life insurance companies. Show
So how do these two differ, and how does that difference affect you? Mutual and stock insurers have three points of comparison: ownership, earnings, and risk. Ownership and Management The main difference between stock and mutual insurance companies is ownership. A stock insurer is a corporation owned by its shareholders. They're either publicly listed or privately held. On the other hand, mutual insurance companies are owned by the policyholders. This means if you buy an insurance plan from them, you immediately gain a share in the company. Since you partly own the company, you get to vote on the board of directors. Policyholders of stock insurers don’t get the same privilege unless they’re investors as well. The type of ownership affects the earnings of the insurance company – where the money comes from and where it goes. Earnings Both kinds of insurers profit by collecting your premiums and that of other policyholders. But stock companies have some advantage in terms of earnings since they also get funds from their investors. When they come upon extra income, stock insurers distribute the surplus to the shareholders in the form of dividends. They need to consistently meet the expectations of their investors, otherwise, they may lose that extra source of profit. Meanwhile, mutual insurers pay out their extra profit to their policyholders. This can come in the form of dividends or reductions in future premiums. This means you directly benefit from the surplus income of your mutual insurer. Both types of insurance companies also have the option to invest their surplus income. The difference lies in the types of investments they go for. Stock insurance companies are more likely to invest in high-return but high-risk assets. On the other hand, mutual insurers are more likely to invest in conservative, low-risk holdings. This ensures that they have just enough capital to meet the needs of the policyholders. The investment behavior and source of profit of both insurers affect their financial stability. Financial Risk Stock insurers are inclined to focus on the short term as they typically invest in high-yield assets. This allows them to continually earn profits for shareholders. These assets may hold the promise of better profits, but they also tend to come with higher risks. Mutual insurers, meanwhile, focus on the long term as they make conservative investments. They only need to maintain their capital to meet the needs of their policyholders. The yield may not be as high as stock insurance, but the risk is low. Which Benefits You More? The goal of stock insurers is to maximize their profits for the benefit of their shareholders, whereas mutual insurance companies work to maintain enough capital to meet your needs as a customer. Between the two, you’ll benefit more directly from mutual insurers. Mutual insurance providers are suitable for long-term coverage, from life to disability. This type of company is also more service-oriented than stock insurers. To ensure your mutual insurer, choose one that has been around for a long time. Most Trusted Mutual Insurance Company in the Philippines With over a century’s worth of experience, InLife is more than capable of protecting you financially. We’ll help you plan your investments and retirement, so you can feel more confident about your future. In our mission to promote financial literacy among Filipinos, InLife launched Maperaan. These programs and products equip you with the knowledge you need to manage your wealth better, helping you achieve a financially secure future. Talk to one of our advisors to learn more about our company and our products today. Understanding the difference between a stock insurance company and mutual insurance company and how these differences impact the policies they offer is crucial to making an educated purchase, particularly when you are looking into dividend paying whole life insurance. While both types of insurers, stock and mutual, typically offer similar life insurance policies and provisions, it is the ownership structure of mutual life insurance companies that puts these carriers in a unique position to take a different approach to managing their businesses and offering policy features that have some distinct advantages for policyowners. Stock vs Mutual Life Insurance CompaniesMutual life insurance companies, also known as “Mutuals”, have no shareholders. The policy owners are members of the corporation controlling the insurer and this grants them membership rights. The rights of a mutual company policyholder include:
*Profits earned by a mutual insurance company must be either kept within the company or distributed to policyholders as dividend distributions or reductions to future premiums. Stock Company Features
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Δ Mutual Company vs Stock Company[Differences in Operating Approaches]Historically, mutual life insurance companies have a record of being more apt to consider the long-term health of the business when it comes to making strategic decisions than stock life insurance companies. This tendency likely stems from the difference in focus between the two types of insurers:
This long-term focus means mutual life insurance companies usually take a more conservative approach to investing their funds. These mutuals differ from stock companies in that they don’t have the ability to raise funds by issuing stock in times of crisis. Thus, their investments need to be able to withstand market booms and busts, which requires a more slow and steady approach. Stock insurance firms must report on their performance every quarter to their investors, which means their management needs to focus on shorter term performance to a greater degree than mutual life insurers. Corporate CompensationAdditionally, unlike the management of mutual life insurers, the management of stock life companies often receives a portion of their compensation in the form of stock options linked to the company’s stock price. This can cause them to take on more investment risk as a means of boosting the company’s stock price to enhance their compensation. As stock life insurance companies management’s stock options typically vest, or come due, at different time periods, they are incentivized to maximize the company’s performance on what is often a shorter time horizon than that of policyholders, presenting a potential conflict of interest not found with mutual life insurance providers. FrugalityGiven the difference in ownership structure between mutual vs stock companies, it should come as no surprise that studies have found that mutual life insurers typically are more frugal than stock life insurers at running their businesses. This extends to the issue of management compensation, which is usually higher for stock insurance company executives than for their opposite numbers at mutual life firms. One factor driving this may be that qualifying policyholders at mutual companies get to vote for the corporation’s directors, while this is not the case at stock companies. Fraternal Life Insurance CompaniesThere are a select few fraternal life insurance companies as well. Fraternal companies typically focus on providing financial products to its members and member families, like group life insurance. Members of Fraternal life insurance companies usually feel a greater connection to the community, then with stock or mutual companies. The Top Mutual, Stock and Fraternal CompaniesWe ranked the following top 10 mutual companies according to our current preferences. And the stock and fraternal life insurance companies are in order of total assets. For a specific recommendation, please give us a call for a complimentary strategy session. Top 10 Mutual Life Insurance Companies(According to I&E)
Top 10 Stock Life Insurance Companies
Top 10 Fraternal Life Insurance Companies
Mutual Life Insurance Policies Compared to Stock Life Insurance PoliciesStrong History of Dividend PaymentsOne of the advantages of life insurance from a mutual company is the strong history of dividend payments paid to policyholders by many of these organizations. As dividends are treated as a return of premium by the IRS, they are not taxable to the policyholders who receive them. While life insurance dividend payments are not guaranteed, the most prominent U.S. mutual insurance companies have racked up admirable records of paying dividends year in and year out, with some of them having done so for more than 100 years without missing a single year of dividend payouts. While participating stock insurance companies may pay dividends, they may also do so to their shareholders. These companies pay dividends out of their profits quarterly, which acts to reduce their average surpluses as a percentage of their total assets and liabilities. Large SurplusesWithout the need to also return profits in the form of dividends to shareholders as well, mutual life insurers are typically able to build up larger surpluses considered in relation to total assets than stock insurers, helping support consistent dividend payments. This strategy reflects the generational approach of mutual life insurers, who focus on managing their companies to enable them to provide coverage for multiple generations of policyholders. Equitable
Treatment for All PoliciesAnother advantage associated with life insurance policies sold by mutual insurers is that these firms are known for delivering similar treatment to their complete book of business, meaning that when payout rates are lowered due to falling interest rates, these companies typically lower them for older policies as well as for newer policies. Stock insurers are not always known for being as equitable in their treatment of older life insurance products in similar situations. Over time, the focus of mutual life companies on providing policyholders with equitable treatment has enabled them to offer cash value life insurance policies that, according to some experts, have provided more value for the dollar than the average policy issued by stock life insurance companies. However, operating as a mutual life insurer has some disadvantages, including:
While these disadvantages may not be relevant to a policyholder, they can lead to a mutual life’s management deciding to reorganize the company to overcome some of these issues. Reorganizations of Mutual Life Insurance CompaniesHow significant the disadvantages cited above truly are can be a matter of perception. In addition to addressing the issues mentioned above, another reason cited as motivating such conversions is the potential for the company’s management to reap the greater financial rewards typically paid out to stock life insurance company leadership. Depending on the type of conversion, reorganization can offer a potential financial benefit to policyholders, who gain shares in the insurer upon conversion to a stock format. Reorganizations come in two types:Type 1The first type is a Full Demutualization. A full demutualization is when a mutual life insurer converts to a stock insurance company. An example of a more recent demutualization would be Ohio National. And probably the most well known in recent years would be MetLife. The net worth of the mutual company, also known as its surplus, is typically distributed to its policyholders in the form of stock, cash, and policy enhancements. The policyholders no longer have membership rights, but their insurance policy contractual rights remain in effect. The company will often issue stock at the same time to raise capital to pay for the conversion and to provide it with working capital. Type 2The second type of reorganization is a Mutual holding company (MHC) conversion AKA a mutual insurance holding company (MIHC) conversion. In this type of conversion, the mutual insurance company is converted to a stock insurance company that is fully owned by a mutual holding company. Often a stock holding company will be placed between the mutual holding company and the insurance entity to offer the company greater flexibility. Subsidiaries can be owned by the mutual holding company or the stock holding company, depending on their purpose. Which is the Better Alternative?Full demutualization is typically considered to be a better alternative for policyholders. Demutualization policyholders generally end up with stock in the insurer, or cash or policy enhancements of comparable value, in return for giving up their membership rights due to the conversion. In a mutual holding company conversion, policy owners are typically granted subscription rights in the stock company subsidiary rather than outright shares. Thus, unless they pony up to invest in the newly created stock mutual holding company, they don’t benefit from the conversion to the same degree as they would in a full demutualization. The occurrence of a reorganization is highly unpredictable, as a result the potential for demutualization of some sort should generally not be a primary factor in determining what type of life insurance policy to buy. However, they do happen from time to time, so it is important to be aware of the possibility if you are purchasing a life insurance policy sold by a mutual life insurance company. ConclusionChoosing a life insurance policy can be complicated, given the many considerations involved. While policies sold by mutual life insurers are similar in many ways to those sold by stock life insurance companies, as we have seen, there are certain benefits to buying policies from mutual insurers. These benefits include the generally more conservative management and investing approach of such companies along with their ability to maximize policyholder’s dividends from the profits they earn. Additionally, mutual life insurers may be thought to be more likely to equitably treat all policyholders, such as in cases where falling interest rates result in reduced payout rates on the company’s entire policyholder roster. What type of insurance sells shares to the public and is owned by shareholders?What is a stock insurance company? A stock insurer is a public or private company owned by shareholders, who have bought shares in the company that, in the case of a public company, trade on a stock exchange.
Which insurers are owned by stockholders?The main difference between the two types of companies is ownership structures—stock insurers are owned by shareholders while mutual insurers are owned by the policyholders. Mutual insurers are typically conservative investors, while stock insurers take more investing risks.
Are mutual insurers owned by shareholders?Mutual insurance companies are solely owned by policyholders, while stock insurance companies are owned by shareholders. In a stock insurance company, policyholders have no control over the company's management.
Which type of life insurance company is owned by shareholders?Ownership and leadership:
A mutual insurance company is owned by its policyholders, while a stock insurance company is owned by its shareholders and can be either privately held or publicly traded.
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