3 Advantages of Mutual Insurance Companies

When you’re shopping for whole life insurance, you’ll probably learn that there are different kinds of insurance companies. Most notably, there are mutual companies and stock companies. This refers to the company’s ownership and can have a significant impact on your experience with life insurance. Aside from the obvious, there are many advantages of mutual insurance companies, so we’re sharing them with you.

What is a Mutual Company? 

A mutual life insurance company is a company that is owned by the policyholders. When you purchase a policy, this makes you a partial owner of the company. As such, you get to partake in any profits the company makes. A stock company, on the other hand, is owned by stockholders and pays profits to them. 

3 Advantages of Mutual Insurance Companies

Apart from the obvious advantage of earning dividends when you choose a stock company, there are a few lesser-known benefits, too. 

1. Ownership and Voting

One major benefit of mutual insurance companies is that they are organized in favor of the policyholders. This means that if you own a life insurance policy with a mutual company, you have a right to vote for the Board of Directors. You have a voice when you’re a part of a mutual company, and your interests matter. This gives the customers a degree of power over how the company is run. Mutual companies, in general, tend to have a greater long-term scope because policyholders have a vetted interest in long-term performance.

Stock companies relinquish voting rights to the shareholders, which means that they can vote for board members who will see to their interests over the policyholders. While this doesn’t necessarily mean you’re doomed, it may mean that the company makes short-term choices that don’t benefit you in the long term. 

2. Steady Ownership

Mutual companies are built on certainty–they are private companies that tend to focus on long-term solutions and strategies. As such, they don’t really change ownership often, and any changes must be voted on. This can lead to stability and confidence in the strategies employed by your life insurance company. 

In particular, these strategies tend to happen over long time frames, and are very conservative in nature. Mutual companies don’t take big risks with their money. This means slow, certain profits over time, as opposed to unpredictable and unreliable profits. The former is important when you want insurance. 

In contrast, shareholders in stock companies can sell their shares at any time, and the ownership of the companies can bounce around year after year. While this can occasionally translate to renewed capital from private equity firms, this can also lead to increased risk-taking in investments. If you want certainty and security from your insurance company, you don’t want to work with risky investors. 

3. Dividends

When you have life insurance with a mutual company, you get to earn dividends. These dividends represent company profits. Your mutual company will declare a gross dividend rate each year, so you roughly know what to expect. While dividends are not guaranteed—because companies can’t guarantee profits—you can rest assured that any profits will result in a dividend. 

This is a really powerful way to grow your Cash Value savings because you can contribute your dividends to PUAs that increase the floor of your Cash Value. This helps to accelerate future interest and dividends that you earn. 

While stock companies pay dividends, they pay them to shareholders. Shareholders may or may not also be customers of the life insurance company. While of course, this can be great for shareholders, if you don’t intend on buying company stock, you don’t benefit from dividends. 

Want to Work with a Mutual Company?

As you can see, there are three major benefits to working with a mutual insurance company when you buy life insurance. In particular, if you intend to use whole life insurance for your savings, then you want to work with a mutual company. It’s the most efficient option, and the dividends make an important contribution to your Cash Value’s rate of return. 

If you’d like to buy whole life insurance with a mutual company, we can help! Book with us to get a personalized illustration, or you can email us your questions at welcome@prosperitythinkers.com.

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