CandleFocus Glossary Editor
A mutual company is an insurance firm that is owned and operated by its policy-holders. It is run for the benefit of the policy-holders and its income generated from premiums is distributed back to the policyholders as a reward for their participation. Mutual companies differ from publicly held companies in that they are owned by the policyholders – they have no stockholders, or shareholders, to please. Instead, dividends are distributed among the policyholders.
In a mutual company the policyholders are part-owners, while the others involved – directors, managers and employees - are fiduciaries responsible to carry out the policyholders' wishes. They have a duty to the policyholders and act solely in the interests of the policyholders. Mutual insurance companies are organized to protect the policy holders through their pooling of resources. Therefore policyholders are able to benefit from lower premiums and stronger security than those in individual plans.
Mutual companies manage the funds collected at a lower cost to policyholders, because they pay no income tax, capital gains tax, and, in many cases, no state premium taxes. This results in reduced premiums charged to the policyholders, increased dividends and/or reduced premiums. Mutual companies invest their money in safe investments such as bonds, thus minimizing the risk and financial losses to their policyholders, who are the owners of the corporation.
Another advantage to subscribing to a mutual company, is that policyholders are active participants in the governance and decisions of the company. In other words, policyholders have the right to vote on the company's board of directors, who are responsible for making decisions on insurance rates and policy terms.
Being a policyholder of a mutual company is like being part of a large financial family, where the collective actions of a group of people will have a direct advantage over individual actions. Mutual companies are driven to serve their policyholders, by keeping premiums fair and competitive, while also striving to give back as much as they can in terms of dividends and reduced premiums.
In a mutual company the policyholders are part-owners, while the others involved – directors, managers and employees - are fiduciaries responsible to carry out the policyholders' wishes. They have a duty to the policyholders and act solely in the interests of the policyholders. Mutual insurance companies are organized to protect the policy holders through their pooling of resources. Therefore policyholders are able to benefit from lower premiums and stronger security than those in individual plans.
Mutual companies manage the funds collected at a lower cost to policyholders, because they pay no income tax, capital gains tax, and, in many cases, no state premium taxes. This results in reduced premiums charged to the policyholders, increased dividends and/or reduced premiums. Mutual companies invest their money in safe investments such as bonds, thus minimizing the risk and financial losses to their policyholders, who are the owners of the corporation.
Another advantage to subscribing to a mutual company, is that policyholders are active participants in the governance and decisions of the company. In other words, policyholders have the right to vote on the company's board of directors, who are responsible for making decisions on insurance rates and policy terms.
Being a policyholder of a mutual company is like being part of a large financial family, where the collective actions of a group of people will have a direct advantage over individual actions. Mutual companies are driven to serve their policyholders, by keeping premiums fair and competitive, while also striving to give back as much as they can in terms of dividends and reduced premiums.