All insurers have the same purpose: to provide financial protection for you and your loved ones. They’re all similar upfront when you compare insurance products. But on the back end, insurance providers are structured differently. Some classify as stock insurers, others are policyholder-owned mutual life insurance companies.
So how do these two differ, and how does that difference affect you?
Mutual and stock insurers have three points of comparison: ownership, earnings, and risk.
Ownership and Management
The main difference between stock and mutual insurance companies is ownership. A stock insurer is a corporation owned by its shareholders. They're either publicly listed or privately held.
On the other hand, mutual insurance companies are owned by the policyholders. This means if you buy an insurance plan from them, you immediately gain a share in the company. Since you partly own the company, you get to vote on the board of directors. Policyholders of stock insurers don’t get the same privilege unless they’re investors as well.
The type of ownership affects the earnings of the insurance company – where the money comes from and where it goes.
Both kinds of insurers profit by collecting your premiums and that of other policyholders. But stock companies have some advantage in terms of earnings since they also get funds from their investors.
When they come upon extra income, stock insurers distribute the surplus to the shareholders in the form of dividends. They need to consistently meet the expectations of their investors, otherwise, they may lose that extra source of profit.
Meanwhile, mutual insurers pay out their extra profit to their policyholders. This can come in the form of dividends or reductions in future premiums. This means you directly benefit from the surplus income of your mutual insurer.
Both types of insurance companies also have the option to invest their surplus income. The difference lies in the types of investments they go for.
Stock insurance companies are more likely to invest in high-return but high-risk assets. On the other hand, mutual insurers are more likely to invest in conservative, low-risk holdings. This ensures that they have just enough capital to meet the needs of the policyholders.
The investment behavior and source of profit of both insurers affect their financial stability.
Stock insurers are inclined to focus on the short term as they typically invest in high-yield assets. This allows them to continually earn profits for shareholders. These assets may hold the promise of better profits, but they also tend to come with higher risks.
Mutual insurers, meanwhile, focus on the long term as they make conservative investments. They only need to maintain their capital to meet the needs of their policyholders. The yield may not be as high as stock insurance, but the risk is low.
Which Benefits You More?
The goal of stock insurers is to maximize their profits for the benefit of their shareholders, whereas mutual insurance companies work to maintain enough capital to meet your needs as a customer.
Between the two, you’ll benefit more directly from mutual insurers. Mutual insurance providers are suitable for long-term coverage, from life to disability. This type of company is also more service-oriented than stock insurers. To ensure your mutual insurer, choose one that has been around for a long time.
Most Trusted Mutual Insurance Company in the Philippines
With over a century’s worth of experience, InLife is more than capable of protecting you financially. We’ll help you plan your investments and retirement, so you can feel more confident about your future.
In our mission to promote financial literacy among Filipinos, InLife launched Maperaan. These programs and products equip you with the knowledge you need to manage your wealth better, helping you achieve a financially secure future.
Talk to one of our advisors to learn more about our company and our products today.