There are two types of life insurance companies in the insurance business today. Some are stock companies, which are publicly traded entities, while others are mutual companies that have no publicly traded ownership interest. Mutual life insurance companies are owned by the holders of participating policies, which share in the ownership benefits of the company; non-participating policies do not. (Not all insurance policies issued by mutual companies are participating policies.)
Mutual insurance policy owners have two benefits that are similar to the benefits of stockholders in public corporations: They receive a portion of the firm's earnings in the form of a dividend; and they have voting rights in the company.
Whole Life Insurance
Whole life insurance is a form of permanent insurance that provides strong guarantees. It lasts your entire life with a guaranteed premium cost and guaranteed death benefit. Other types of permanent insurance may also be in force your entire life but don't guarantee the premium or death benefit.
Whole life is typically not offered by stock companies but is the flagship product of many mutual insurers. Whole life policies are typically participating policies that receive policy dividends.
Mutual insurance companies are often characterized by their exceptionally high financial-strength ratings, which are issued by credit rating agencies, such as Moody's, Fitch and S&P. The highest-rated insurers at all three rating agencies are mutual insurers.
Dividends issued to holders of participating policies are received tax-free, because they are defined by the IRS as a return of overpaid premium. Dividends can be used to purchase additional paid-up insurance, used to reduce premiums or received in cash.
Term insurance is typically not a participating product sold by mutual insurance companies, but it is often a convertible product. Term insurance is said to be convertible if it can be converted into whole life insurance without additional underwriting.
Term insurance is in force for a limited period of time, or a specified term, typically five, 10 or 20 years. It's relatively inexpensive and is best suited for young families who have large insurance needs but small budgets to pay for the insurance. Most mutual life term insurance is expensive compared with the term insurance issued by stock companies, but it is considered more flexible and more beneficial because of its convertibility.