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The trusted Mutual life insurance company model

A strong model where you are the owner

There are various kinds of life insurance companies on the market that offer term life.  They all have the pro's and con's and ultimately, it's the life insurance rate and how well they are run that matters.  The mutual life company model is a strong contender and well designed structure that continues to offer many well-rated plans and and well-priced plans.  Let's look closer at Mutual life companies.

Think of Mutual life companies as partnerships where you, the policy holder, is a partner.  You won't be required to put in a 9 to 5 but you also won't have some of your premiums going to shareholders or investors (in most cases).  The word mutual sums it up pretty well.  With this structure, each policy holder is an owner of the company.  No policy holder has enough ownership to make decisions (which would usually require a majority) although there are times where you do vote on certain things within the company such as individuals being submitted for the board of directors.  The board of directors is a group of people designated by the company to manage it's affairs.  Keep in mind that there is still a great deal of management required and the board of directors are responsible to the company and it's mutual owners (you) to successfully do this. 

What's the advantage to a Mutual life insurance company?  The big one is that this type of company is not in business to make a profit.  That's the domain of a Stock life insurance carrier.  These are the companies you usually see listed on the stock exchange.  They have management that is responsible to manage income/expense/risk in such as way that profit is maximized for shareholders (those who own the stock and/or bonds).  With a Mutual company, any additional premium above what is needed for expense/claims/reserves is paid back to the owners (policy owners) as "over-charged" premium.  It's similar to non-profit health insurance carriers.  On the surface, this seems like a great option since the stockholders are being eliminated.  The premium should be much cheaper, right?  Not necessarily.  For your specific situation, one company may be cheaper than another regardless of Mutual or Stock structure.  This may just be a demographic issue.  If Mutual life companies had such an advantage in cost structure, they would be the only game in town.  They aren't and so what gives.  Stock insurance companies have a different advantage in that they can quickly raise funds for reserves and company expense to expand fast.  Why is this important, it's all about life insurance risk and ability to spread it among as many people as possible.  The more people in a risk pool, the smoother and predictable the claims experience. 

So it's a battle between re-invested premium and the ability to offset claims with more people.  Fortunately for you, the term life insurance purchaser, it's a battle that continues to put pressure downward on life insurance rates.







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