Mutual or publically owned: Which is best insurance company for you?
By GAIL LIBERMAN
Special to the Daily News
Saturday, August 22, 2009
Are you better off buying life insurance from a "mutual" insurance company or a publicly owned one?
Mutual insurance companies are owned by policyholders. Publicly owned insurance companies are owned by stockholders.
Stock-owned insurance companies showed higher growth rates and better earnings than mutuals at the turn of the decade, according to an August report by Moody’s Investors Services.
However, mutual insurance companies experienced less severe credit downgrades than stock-owned companies during the latest recession. Mutuals, the report says, are better capitalized, have a less risky business focus and are not as subject to the investor panics created by newspaper headlines.
"Mutual insurers are typically more focused on life insurance and other protection products, which tend to stay in force for long periods and have a very stable earnings profile with a low degree of risk," the report says.
One great thing about mutual insurance companies is they pay life insurance policyholders dividends, which are excess profits. Dividends are not taxed because the IRS considers them a return of your premiums.
You can reinvest your dividends in the cash value or savings account portion of your policy. Or you can take them in cash. You also can use them to buy more insurance or help pay premiums.
Today, mutual insurance companies are paying dividends of more than 5 percent. The board of trustees of Northwestern Mutual Life Insurance Company, for example, approved an estimated dividend payout of $4.6 billion for participating policy owners in 2009.
You generally buy insurance of mutual insurance companies via their own insurance agents. By contrast, stock-owned insurance may be sold by an agent who deals with a variety of companies.
The downside of mutual insurers: If they do need cash, they don’t have as much access to the capital markets as stock-owned companies.
Moody’s says stock companies focus on higher-risk and higher-return insurance, like variable annuities and universal variable life insurance. These let you invest in mutual funds for growth.
Insurance offered by stock-owned companies also may come with "aggressive guarantees." Variable annuities, for example, may have guaranteed lifetime withdrawal benefits, and their universal variable life insurance carries no lapse guarantees.
The bottom line:
* Stick with the financially strongest companies, rated A to A++ by A.M. Best.
* Deal with an experienced insurance agent who has an insurance license and is a Certified Financial Planner or Certified Life Underwriter and Chartered Financial Consultant.
* Seek companies that provide good customer service and offer the most benefits at the most attractive price.
* Check claims-paying history by searching the company online. The site www.naic.org also has a database of consumer complaints.
The largest mutual insurance companies include TIAA-CREF Group, New York Life, Northwestern Mutual, Mass Mutual, Pacific Life Insurance Group and State Farm.
The largest stock-owned insurance companies include: Metropolitan Group, Prudential of America, American International Group, Hartford Fire and Casualty Group, John Hancock Group, AEGON USA Group, ING America Insurance Holdings Group, Lincoln National Group and AXA Insurance Group.