MOST INSURANCE companies are either stock companies, meaning they are publicly traded and hence have outside shareholders, or they’re mutual companies, which means they should be solely focused on helping policyholders. In practice, this oversimplifies the issue. Even a mutual company has multiple constituencies that it has to keep happy, notably its sales force and headquarter staff, including senior executives. Result: Just because you buy a cash-value policy from a mutual insurer doesn’t mean that the salesperson isn’t collecting a sizable commission or that the policy’s ongoing costs will be low.
Still, it is worth keeping the distinction between stock and mutual insurers in mind if you’re buying a whole-life insurance policy. Many such policies are so-called participating policies. That means they are eligible to receive dividends from the insurer. While stock companies also sell participating whole-life policies, a mutual insurer has the potential to make more generous dividend payments because it doesn’t also need to compensate public shareholders. The largest mutual insurers include Guardian Life, Massachusetts Mutual, New York Life, Northwestern Mutual and TIAA.
The distinction between stock and mutual companies is less important when purchasing other types of cash-value life insurance or buying term insurance. With these other policies, you should probably be more focused on the policy’s cost and on the insurer’s financial strength.
For instance, it’s easy enough to get a bunch of term-insurance quotes with a quick online search. But before buying the policy with the lowest premium, check the insurer’s rating for financial strength. Favor insurers that are rated A or better by A.M. Best, AA or better by Fitch, Aa2 or better by Moody’s, and AA or better by Standard & Poor’s. What if you’re looking for cash-value life insurance? Comparing costs is harder. But you might check out Ameritas Life Insurance and TIAA. Both are rated highly for financial strength and have a reputation for selling lower-cost policies.
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