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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