What is Mutual Insurance?

Mutual insurance is one of the most common types of insurance available in the market today. Mutual insurance companies operate a little bit differently than other types of insurance companies. They offer much the same benefits as other insurance companies except they are not publicly traded. The owners of the business are those that hold participating policies. They still sell policies that are not considered participating as well. However, the bulk of their policy holders have a participating policy and they share in the ownership of the company.

Benefits for Owners

The benefits for owners in the company are very similar to the benefits offered by stockholders. However, they get an insurance policy to go along with their benefits. The owners of participating policies get voting rights in the company. Therefore, when new leadership positions come open, they get to vote on who will replace them. They can also vote on other key matters in the company.

Another large benefit of ownership is that they receive dividends. Any profit that the company makes is distributed to these owners through the dividends. These are similar to what stock holders receive from stock. However, there is one key difference between the two types of dividends. The government classifies dividends from mutual ownership as a premium overpayment refund. Therefore, the dividends received are tax free. You can receive dividends from a company that you own and not pay any taxes. This is a huge benefit to owners of the company and makes mutual insurance ownership very attractive.

The dividends can be distributed in one of three ways. You can use them to purchase more insurance. You can use them to pay your premiums on your existing policies. Or you can simply receive the benefits in cash. This makes the dividends received even more flexible than other types of dividends.

What Policies They Offer

A mutual insurance company offers policies that are very similar to other companies. Life insurance is one of the most common forms of insurance offered through mutual ownership. The whole life policy offered by them provides a lifetime death benefit for its policy holders as long as the premiums are paid. The whole life policies are usually participating policies. Therefore, the owners of whole life are the owners of the company.

They also provide term life insurance that is similar to other company policies. The term policies are not participating policies and receive no dividends or voting rights in the company. The term policies offered by mutual insurance companies are often convertible into whole life insurance. You don't need to cancel your existing policy and start a new one. You simply fill out some paperwork to convert your policy into a whole life policy.

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