Life Insurance Companies: Definition & Types

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

When it comes to selecting a life insurance policy, you have two types of companies to choose from. Learn what these two types are and what makes them different.

Life Insurance

In this lesson, we'll talk about the two types of companies from which you can get life insurance. Each has a different set of features. Let's say you are considering purchasing life insurance, if not for yourself, then for a family member. You begin researching and you find that there are several companies out there that offer life insurance policies. But, how do you choose which company to go with? Let's talk about the two different business types.

Stock Insurance Company

A stock insurance company is a company that sells stock either directly to stockholders or through the stock market. Only stockholders have a voice in the company. If you purchase a policy from this type of business, you won't have a say in the corporation unless you also buy stock in the company. Policyholders are not required to purchase stock in the company.

Mutual Insurance Company

A mutual insurance company, on the other hand, is a company where all its policyholders are its owners. This means that if you purchase a policy from a mutual insurance company, you automatically are also buying into the company and become voting owners of the company with a say as to how the company is run. You also get to vote on who will become a member of its board of directors.

Participating and Non-Participating Policies

Along with these two different company types, you also have two different major types of whole life insurance policies you can choose from. You can choose from either participating or non-participating policies. A participating policy is one that pays you dividends while a non-participating policy is one that doesn't you pay anything. With a participating life insurance policy, you can choose to receive your dividends either in cash or as a discount on your premiums.

Usually, participating policies are sold by mutual insurance companies while non-participating policies are sold by stock insurance policies. But some stock insurance policies also offer participating plans.

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