The Difference Between Stock and Mutual Life Insurers

Stock insurance companies are, like regular corporations, owned by stockholders who put up the required capital with the objective of earning profits on the difference between the premiums paid for policies and the various death and living benefits paid out. Mutual insurance companies are in principle owned by the policy owners rather than stockholders. “Profits,” as such, do not exist. Premiums paid in excess of the amount necessary for the company to pay benefits increase the company’s surplus (similar to a stock company’s capital account or owner’s equity account). A certain amount of surplus is required as a reserve to assure payment of all of the company’s obligations under their life insurance contracts and to finance the company’s growth, but any excess, called divisible surplus, may be shared with and distributed to policy owners. 

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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