Buying “Mutual” Insurance vs. Publicly Owned Insurance

When you make the decision to buy life insurance, you face a whole new batch of research that needs to be done. One of the common questions that comes up is whether to buy life insurance from a “mutual” life insurance company vs. a publicly owned company. Well, that’s all up to you, but here is some information that might help.

The Difference Between Mutual and Publicly Owned Insurances

Mutual insurance companies are owned by the policyholders, while publicly owned companies are owned by stockholders. So what does that mean to you? Well, the short and simple answer is that mutual insurers tend to be more conservative in their investments, and they pay their policyholders dividends, which are excess profits. Publicly owned companies on the other hand, focus on higher-risk and higher-return insurances like variable annuities and universal variable life insurance. These let you invest in mutual funds for growth.

A recent study done in August 2009 by Moody’s Investors Services, found that stock-owned insurance companies showed higher growth rates and better earnings than mutuals at the turn of the decade. However, mutual insurance companies experienced less severe credit downgrades than stock-owned companies during the latest recession. The report tributes this to mutuals being “better capitalized” and having a less risky business focus. Because of this, they’re not subject to the investor panics created by the media.

But no matter what you decide, there are certainly some general tips to follow:

• Seek companies that provide good customer service and offer the most benefits for the best price.
• Always work with experienced insurance agents who have been licensed and are a Certified Financial Planner or Certified Life Underwriter
• Stick with the financially strongest companies - those rated A to A++ by A.M. Best
• Check claims-paying history by searching the company online.  The National Association of Insurance Commissioners (NAIC) has a database of consumer complaints that could be useful here.

As you learn more about the differences between mutual and publicly owned companies, you’ll be able to make more valuable decisions that will affect you and your loved ones for years to come.