Due to varying demands and different circumstances in our society, it is only natural that various types of organizations have emerged.
According to McGill’s Life Insurance, these organizations may be categorized into three broad groups: commercial life insurance, private life insurance providers and government agencies.
Each organization provides their consumers with policies tailored to their specific needs. With this being said, one organization may work better for an applicant than another, which makes shopping around for insurance extremely important.
Below is a breakdown of these three life insurance organizations:
Commercial Life Insurance
McGill states that most life insurance in force today is written by commercial life insurance, as they tend to be more permanent than privately owned insurance companies.
Generally speaking, there are two different types of life insurance corporations: stock life insurance companies and mutual life insurance companies. Both must meet the formation, licensing, capital and/or surplus, and other state law requirements to do business.
The main difference between a stock insurance company and a mutual insurance company is that the stock owned company is responsible for making money for the stockholders while a mutual owned company is responsible for making money for their policyholders.
Since stock owned companies want to generate money for their stockholders, they are more likely to take risks that may leave them vulnerable if anything happens to the stock market. Mutual owned companies have a different mindset. Their main goal is to guarantee maximum benefits to their policyholders therefore they are not pressured to take risks to generate short-term profits.
Private Life Insurance Providers
While commercial companies underwrite most life insurance policies in the United States, there still are other nongovernmental providers of life insurance. These nongovernmental agencies include fraternal benefit societies and saving banks.
Fraternal life insurance is issued by fraternal benefit societies that were formed to provide social and insurance benefits to their members. Insurance offered to these members are similar to insurance offered by commercial companies.
In 1907, the state of Massachusetts enacted a law authorizing saving banks in that state to establish life insurance departments to sell over-the-counter life insurance and annuity contracts to people residing or working in the state, according to McGill. The law was enacted to help provide low-cost insurance by eliminating sale agents’ commissions and home collection of industrial insurance premiums. By the 1940s, New York and Connecticut followed suit and established a savings bank life insurance program. Maximum insurance coverage will vary from state-to-state. However, efforts to establish savings banks life insurance in other states have been rather unsuccessful.
Governmental agencies offer various forms of life insurance protection. These agencies include the Department of Veterans Affairs, the Social Security Administration and the State of Wisconsin.
Ever since World War I, the United States government forged a bond with the Department of Veterans Affairs to create life insurance policies for current and former members of the armed services. Current members of the armed services are covered under the Servicemen’s Group Life Insurance (SEGLI) program while former members are covered under the Veterans Group Life Insurance (VGLI) program, which has multiple forms.
The Social Security Administration administrates the Social Security OASDI (Old Age, Survivors, and Disability Insurance) program, which deals with the payment of retirement benefits and other benefits to the insured and their families.
In 1911, the State of Wisconsin was granted the right to sell life insurance during the State Life Insurance Fund that was created by the Wisconsin legislature. The Fund may issue life insurance policies in amounts up to 10,000 dollars on the lives of persons who are living within the state at the time the insurance is issued, according to McGill.
Want to learn more about life insurance? Read our article The Most Frequently Asked Life Insurance Questions.