What Is a Mutual Insurance Company?
Key takeaways
A mutual insurance company is owned directly by policyholders, as opposed to stock insurance companies, which are owned by shareholders.
Many policies offered by mutual insurance companies come with the potential to receive dividends in years when the company is profitable.
When choosing an insurance company, it’s also important to consider financial stability, policy options and customer satisfaction in addition to ownership structure.
So, you’ve made the decision to purchase life insurance. Congratulations! Few decisions are as consequential in making sure your family is financially protected as making sure you have the right amount and types of coverage.
You probably already know that you should carefully evaluate different policies before signing any applications. But what you may not know is that there are actually different kinds of life insurance companies, and it’s important to know what to look for when choosing a good insurance provider.
Some of the companies you’ll encounter are stock insurance companies, which means that people—other than those who hold policies—can purchase shares of stock and own the company. With a mutual insurance company—like Northwestern Mutual—there are no shareholders. Mutual insurance companies are owned by the policyholders.
Below, we take a look at what a mutual life insurance company is and how it differs from a stock insurance company. We also discuss the other factors you should consider when choosing a partner to make sure that your family is protected.
What is a mutual insurance company?
A mutual insurance company is an insurance company that is owned by policyholders—the very people who purchase coverage from the company.
How common are mutual insurance companies? According to the American Council of Life Insurers 2023 Life Insurance Fact Book, a little more than 15 percent of all life insurers doing business in the United States in 2022 (110 out of 727) were mutual insurance companies. Despite making up such a small percentage of life insurers, mutual insurance companies had $8 trillion of life insurance in force in 2022—more than half as much as the stock insurance companies that make up most insurers.
How mutual insurance companies work
As noted above, mutual insurance companies are owned by the policyholders. These policyholders elect a board, and the board directs the management of the company and is responsible for making decisions around risk management, coverage and investment strategies.
A mutual insurance company makes money primarily in two ways. First, it sells insurance policies and collects premiums from its policyowners. Second, it uses the premiums collected to purchase various investments, which generate additional revenue. After paying insurance claims, taxes and operating expenses, the money that is left over is profit for the company.
Unlike shareholders of a stock insurance company, who profit through buying and selling shares in the company, a mutual policyowner benefits from purchasing a policy and reaping the insurance benefits it generates, such as death benefit coverage, cash surrender value and/or dividends.
What kinds of insurance do mutual insurance companies offer?
Many mutual insurance companies offer participating life insurance. An example of participating life insurance is a whole life insurance policy that pays dividends1 to policyholders when the company performs better than the assumptions it made when setting the policy guarantees. These dividends are not guaranteed and can fluctuate from year to year as performance varies. A participating life insurance policy can also be called a “with-profits policy.”
Other types of life insurance coverage are also commonly offered by mutual insurance companies, including:
- Term life insurance.
- Universal life insurance.
- Variable universal life insurance.
Specific life insurance riders and endorsements may also be available, depending on the company.
Mutual insurance companies vs. stock insurance companies
The primary difference between mutual insurance companies and stock insurance companies lies in their ownership structure.
Unlike a mutual insurance company, which is owned by policyholders, a stock insurance company is owned by shareholders. These are individuals who purchase the company stock on an exchange.
With a stock insurance company, policyholders do not own any portion of the company by virtue of owning a policy. They also have more limited control over the direction of the company, as it’s the shareholders who elect the board of directors. In addition, when a stock insurance company performsbetter than its assumptions, it may choose to return that excess money to shareholders rather than to the policyholders.
When a stock insurance company needs to raise funds for whatever reason, it has the ability to issue and sell new shares of stock. This means that stock insurance companies often have more flexibility than mutual insurance companies.
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Can a mutual insurance company become a stock insurance company?
Yes. Through a process known as “demutualization,” a mutual insurance company can become a stock insurance company. When this happens, policyholders will typically receive shares of company stock as compensation for their ownership in the original mutual company.
How to evaluate a mutual insurance company
Ultimately, whether you choose to purchase life insurance from a mutual insurance company or a stock insurance company, it’s important to carefully consider the company that you buy from. Some characteristics that should guide your decision include the company’s:
Breadth of offerings
If an insurance company doesn’t offer the type of coverage that you want or need, you may cross it off your list. In addition to policy types, you should consider riders and other endorsements that you may want to add to your policy to increase or modify the coverage.
Financial stability
Before you purchase life insurance from any company, you want to make sure that the company is financially stable and that it will be around for the long haul. In the U.S., four ratings agencies evaluate the financial strength of insurance companies. These ratings should carry a lot of weight in your final decision.
Customer satisfaction
You can learn a lot about an insurance company by the way current policyholders talk about their experience. Consider seeking out customer reviews and testimonials so you know what to expect if you move forward with a particular insurer.
Should you choose to work with a mutual insurance or a stock insurance company?
There are many reasons to consider buying life insurance from a mutual insurance company rather than a stock insurance company. First, because policyholders own the company instead of shareholders, mutual insurance companies are not beholden to the quarterly earnings call. This means that mutual insurance companies can focus more on long-term success and stability over short-term profits.
Second, because policyholders elect the board, you’ll have much more direct control over the direction of the company than you would with a stock insurance company.
Finally, the possibility of receiving dividends is a major consideration for many individuals who ultimately decide to purchase life insurance through a mutual insurance company. Case in point: Northwestern Mutual’s foundation of mutuality and industry-leading long-term value allows us to expect to pay nearly $8.2B in dividends in 2025 to policyholders.
Your Northwestern Mutual financial advisor can help you to learn more about the benefits of a mutual insurance company. They can also build a comprehensive financial plan that shows you how life insurance works alongside other financial tools. The plan can be tailored to your goals—helping you identify blind spots and opportunities to continue to grow and protect your savings as life changes.
