Overview
There are two kinds of life insurance companies: Stock companies are publicly traded entities, while mutual insurance companies have no publicly traded assets. Mutual life insurance companies are owned by holders of participating life insurance policies that share company ownership benefits.
Identification
Mutual life insurance policy owners have certain benefits that are similar to those of public corporation stockholders. These benefits including being able to receive a portion of a firm's earnings through dividends and having company voting rights. Mutual insurance companies offer protection for policyholders by creating a pool of money to pay for covered losses. Unlike stock insurance companies, however, mutual insurance companies have no board of directors or shareholders, which can be both a blessing and a burden in terms of operational procedures and policies. The more mutual insurance policyholders there are, the larger the pool of money, but also the larger the amount of claims needed to be paid.
History
Mutual life insurance has its origins in seventeenth century England through the creation of a group called the Amicable Contributorship. The concept was soon thereafter transported to the American colonies. In 1736, Charleston, South Carolina's "Friendly Society" used the concept as a way to insure residents against property loss caused by fires. Benjamin Franklin then spread the idea further as he discovered that loss from fire was unavoidable. This resulted in the creation of the Philadelphia Contributorship for the Insurance of Houses From Loss by Fire, which developed further into what is known as mutual life insurance in modern times.
Geography
There are only five large countries that still have operating mutual insurance companies: the United States, United Kingdom, Germany, Japan and Spain. South Africa had mutual insurance companies in operation for an extended time period, but there are none operating as of 2009.
Benefits
In the United States, mutual insurance companies are frequently characterized for extremely high financial strength ratings issued by credit rating agencies such as Fitch, Moody's, and Standard and Poor's. The highest-rated insurance companies at all three of these rating agencies are mutual life insurance companies. Most mutual life insurance is expensive when compared to the term insurance that stock companies issue, but it is thought to be more beneficial and flexible due to its ease of convertibility.
Other Features
Mutual life insurance dividends issued to participating insurance policy holders are tax-free, as the IRS defines them as an overpaid premium return. The ease of convertibility associated with mutual life insurance enables you to use dividends from it to buy additional insurance or to reduce your premiums. You can also simply receive mutual life insurance dividends in cash.
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