Whole Life - Mutual Co Versus Stock Co

[MaxReaver]

So,

I am not sure I get the concept of a non-mutual company selling a whole life product.

With mutuals, excess profits (for lack of a better way to put it) are paid to the policy holders in the form of policy dividends. What sort of practice do private/investor owned or stock owned insurance carriers have for determining how much interest (or whatever its called) is paid to fuel the growth in the cash value in their whole life policies?

It seems like a lot of former-mutual companies switched to a UL focus when they made the jump to stock companies.

Am I missing something here? Generally speaking, will a WL contract from a solid mutual outperform one from non-mutual?

 

[DHK]

You're missing the difference between participating whole life or 'par whole life' and non-participating whole life or 'non-par whole life'.

Typically, a par whole life will have a higher premium than non-par whole life, but you'll also participate in mutual company profitability through dividends. Non-par whole life may just have a stated interest rate.

 

[walthamny]

Stock companies would prefer UL over WL for various reasons, one being there are less guarentees with UL so less of the balance sheet has to be assigned for reserves. A well run stock company is always better than a poorly run mutual company, something when they sell you the cool-aid at a mutual company they never seem to mention. Being mutual is not necessarily mean being fiduciary or always being the best for client.

Lets take 2 equal stock companies, equal in size, equal in profits. Well a mutual company can decide 10 million a year bonus is reasonable and the stock company may decide 1 million is a fine bonus. Suddenly you will have 2 different dividend rates. Now the stock company can offer incentives to the CEO like stock options for better underwriting or better management. That's much harder for a mutual company. A stock company can buy other companies easily by borrowing money, something a mutual company can't do easily.

If I were selling a 50k permanent insurance, I would just choose one company, most likely mutual, however, If someone needed 50 million permanent, I would not put everything with one mutual company. There would be several mutual and stock companies, and I would split the mutual companies 50-50 non-direct and direct dividend recognition.

By the way mutual also does not mean lower rates or lower costs. Many times when I sell disability insurance, stock companies will beat mutual in pricing.

Now I am sure there are others on this board who would have different opinion but every business in a capitalist system has to think profits first. If you think they are motivated by lets do whats best for the people, we have a social obligation to help people people get insurance, then system won't work. We as humans don't always follow that, we have biases and tastes. I like to work with people I like. Mutual companies have a nice spin but they also think about profits first.