Mutual insurance company

A mutual insurance company is owned by the people who buy its policies. There are no outside stockholders to pay. Any underwriting profit stays in the company as surplus or, if the board decides, goes back to policyholders as dividends. State Farm and Amica Mutual are well-known examples, and many small regional and farm mutuals sell homeowners policies in a handful of states.

Ownership is real but modest. Policyholders usually have a vote in electing directors, though in practice few exercise it, and buying a policy does not entitle you to a check. Dividends are declared by the board, are not guaranteed, and often depend on how the year's weather went. A mutual that skips a dividend after a bad hail season has not broken a promise. A few small mutuals sell assessable policies that can charge extra premium after heavy losses, so check your policy if you are buying from a small farm or town mutual.

Mutuals generally cannot sell stock to raise capital, so they depend on retained surplus and reinsurance, which is why their financial strength rating deserves a look. Neither structure is automatically better: a mutual has no shareholders to answer to, while a stock company does. See how mutual, stock and reciprocal insurers differ and mutual insurers that pay policyholder dividends.