Mutual life insurance

What is mutual life insurance?

In order to understand what mutual life insurance is, you must first understand that there are two types of life insurance companies. The first type is a stock insurance company, which is a publicly traded entity owned by investors. The second type of company is a mutual life insurance company, which is an organisation owned entirely but its policyholders. They pay premiums into a mutual fund, then the fund in turn pays for the life insurance policies.

As a result, policyholders are able to share in the benefits of owning the company. Any profits earned by a mutual insurance company are passed on to policyholders in the form of dividends or possibly reduced future premiums. Policyholders also get to enjoy voting rights within the company.

Defining Key Terms: Policyholder Vs Shareholder?

To better understand the concept of mutual life insurance, it’s important to first define the two key terms of policyholder and shareholder. As mentioned above, mutual life insurance companies are designed to operate in the best interests of policyholders, who are also often referred to as members. However, policyholders are unable to trade or sell their membership for profit—once they stop being a policyholder, their membership ceases.

Stock life insurance companies, on the other hand, are publicly traded entities. This means that they are required to meet the needs of shareholders. Of course, the needs of the policyholder in a mutual life insurance company will be very different to those of a shareholder in a publicly traded insurance company. For example, while shareholders might judge a company’s success based on reported and projected earnings in quarterly reports, policyholders tend to take a longer-term view and look for a company that will still be operating successfully years down the track and offer them a life insurance benefit payment.

What is the difference between mutual life insurance and life insurance?

There are a number of key differences that separate mutual life insurance from life insurance. Life insurance is designed as a protection plan to look after the financial wellbeing of your loved ones when you pass away. While whole life insurance policies are no longer offered in Australia, term life policies require you to pay premiums over a specified period in order to receive a benefit payment when you die.

Mutual insurance, however, is managed by fund managers from investment companies. Each person who takes out a policy with a mutual fund gets a share of that fund's profits.

Any extra revenue a mutual fund generates is returned to its policyholders in the form of dividends or lower insurance premiums. The money in a mutual fund can be used by an investment company to invest in shares, bonds and cash.

While mutual fund members have voting rights in the organisation and have the right to expect that the fund will be run in the best interests of all members, they are not able to sell their membership share. However, shareholders in a publicly traded insurance company can sell their membership share.

Mutual life insurance companies tend to take a longer term view to running their company than stock life insurance companies, only because they are concerned about meeting the long-term needs of policyholders rather than worrying about daily share price fluctuations.

Mutual life insurance vs life insurance: What are the pros and cons?


  • Mutual funds were established to meet the insurance needs of policyholders rather than the investment needs of shareholders.
  • Mutual funds are designed to operate in the best interests of policyholders.
  • Policyholders get voting rights to have their say in the running of the mutual fund.
  • Mutual life insurance fund profits are passed on to policyholders in the form of dividends or reduced premium costs.
  • They provide a secure investment option.


  • As there are no outside investors, the performance of management is not as closely scrutinised as it is in a publicly-traded company.
  • Because mutual companies can't issue stock, they have limited capacity to raise the funds needed to acquire or merge with other companies.
  • Life insurance policies can be limited compared to those offered by stock life insurance companies.

What are the long-term outcomes from having mutual life insurance?

Having a mutual life insurance policy in place can result in many long-term benefits for policyholders. In fact, the whole structure of mutual life insurance company is geared towards providing success and a range of benefits well into the future. Rather than taking the approach of stock insurance companies which must manage share prices and quarterly earnings to satisfy shareholders, mutual funds are able to put long-term investment strategies in place.

As policyholders own mutual life insurance companies, mutual funds must strive to find a happy balance between maximising profits and meeting the insurance needs of members. The fact that they are not constrained by the need to purely make profits, mutual life insurance companies are generally able to provide competitive products that satisfy the requirements of members.

Of course, they can also return profits to policyholders through things like refunds and rebates, and can form a strong relationship with their ownership communities. In addition, mutual companies are immune to takeover bids, which further strengthens their focus away from short-term goals and towards successful long-term planning.

As a result, policyholders feel a sense of belonging and become active participants in the running of mutual companies. This in turn helps ensure that a mutual is run in the best interests of members and that the insurance needs of policyholders are met.

Mutual life insurance funds offer a range of benefits to their policyholders. However, there are also drawbacks to taking out this form of coverage, so make sure to compare your options and seek advice from an insurance consultant before deciding in the right policy for you.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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