Best Stock And A Mutual Insurance Company in 2022
Best Stock And A Mutual Insurance Company in 2022
Who are they beholden to? In this episode, I'm going to address the question what's the difference between a stock and a mutual insurance company? Get ready. Sometimes people don't understand the basics behind each of those 2 types of insurance institutions.
So,
my name is M U Sunny and what do I know? Well, I've had an insurance license
for more than 4 and a half decades. I actually got my insurance license clear
back in 1974. Yeah, I'm pretty old. My first pet was a dinosaur, okay? Now,
the difference between insurance companies
that are mutual or stock, and actually that's not the only 2 types of insurance
companies, those are the 2 that I'm going to talk about mostly in this episode.
There are actually maybe ESOP type companies and those are owned by the
employees at the insurance company.
So,
it's like an employee stock ownership type of a plan and there's also captive
insurance companies and I will not go into details on those captive insurance
companies, they operate different than the normal stock or mutual insurance
companies. So, what is the difference basically between those 2 other than
they're spelled differently?
Now,
before I go any further, if what you hear here is intriguing, be sure and share
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Now, don't pay $20 retail, I will gift it to
you, okay? In a nutshell, a stock insurance company is more beholden to the
stockholders. Those are people who own stock in the company, you can own stock
in an insurance company without ever having insurance that you own in that insurance
company, okay? It's owned by the stockholders just like most corporations in
America, that's a stock company. In contrast,
a
mutual company is mutually owned by who? The policy holders, okay? So, in a
mutual company, they're more beholden to the policy owners because the policy
owners are the ones who get a piece of the profits or the dividends or what
have you, instead of the stockholders. Now, before you make any judgments,
I'm not here to say which one is better, but
you need to understand the difference between stock and mutual. Mutual is owned
mutually by the policyholders, stock companies are owned by the stockholders,
okay? So far so good. Let's go into a little bit more about each of these types
of insurance companies and what that means for you. So, an insurance company,
a legal reserve insurance company, whether
they offer all kinds of insurance from auto, homeowners, property and casualty
is what it's called or they focus on health insurance or life insurance, let's
just talk about life insurance right now because it's probably the simplest.
Instead of paying a premium like for car insurance or health insurance and then
when you have a claim, you're going, "Is that covered? Is that
covered?"
that's
a little bit ambiguous and so life insurance is pretty cut and dried. Now, I've
always used life insurance for life, okay, for living benefits, so that way
you're taking out an insurance policy primarily for the purpose of using it for
tax advantaged growth of your money and tax-free income when you retire. You're
using it to live off of and if you structure it right,
in many of my episodes, I show you that it
knocks the socks off of putting the same amount of money into an IRA or 401k
that's going to be taxed at the end of the day and it's even better than a Roth
IRA or 401k because they only have 2 benefits and a maximum funded insurance
policy has 6 benefits, the 2 of a Roth and 4 additional benefits. So, that's
why I say, "You know what? I've never owned an IRA or 401k and I never
will.
I've never owned a Roth IRA or 401k and I
never will." Why would I when I can have all the benefits of those and a
whole bunch more by having a laser fund? That's what I label as a maximum
funded insurance policy, but let's go back to okay, which company? Now, I've actually
owned universal life from stock companies and mutual companies, both. Stock
companies, they are trying to manage their profits.
How
does an insurance company do that? They bring in the premium dollars and they
manage that and they try to mitigate risks by making sure that if you apply for
life insurance, in this example, that they screen out the people who have a
poorer lifestyles who already have one foot in the grave or whatever, those are
uninsurable.
So, they're trying to lessen the risks unless
you have a group life insurance policy through work and they put everybody into
that and everybody pays for the unhealthy people and so forth. But an insurance
company is trying to manage the money that is paid in so they'll have it on
hand if somebody dies or there's a catastrophe or what have you and so they
want to have the cash on hand. So, many times they bring in more money and then
if they invest it carefully and properly, which most insurance companies do,
they usually are very conservative. They'll put money in triple A and double A
bonds.
If
they loan money on shopping malls and skyscrapers, it's usually only 50% loan
to value so if they have to foreclose, they usually come out smelling like a
rose because they make money, okay? Insurance companies are the backbone of
America and the backbone of the world.
This is where many banks and credit unions
will take your money that they pay you a measly 1% on right now and they'll
turn around and put 30 to 40% of their tier one assets, that's money that they
want on hand liquid and safe in case of a lot of claims coming in, they put it
into insurance companies. Banks and credit unions borrow our money at 1, they
put in insurance companies and earn 5. They earn 5 times what they're paying
us.
They
earn 50,000 on every million they put into an insurance company and they only
have to pay out 10000 to the people who deposited money in their bank, that's a
pretty good deal, right? You can bypass the middleman and put money straight
into the insurance company.
So,
I have taken out life insurance policies as I indicated with both stock and
mutual, so what's the difference? What happened? As these insurance companies
bring in the premium dollars and they invest it, they have their general
account portfolio rate. And so, they may earn during high interest times like
in the 1980's and 1990's,
insurance companies were earning 8, 10, even
15% on their general account portfolios because mortgages were at 18 to 20%.
CD's at banks back then were paying 10. During low-interest environments, like
we have right now at the recording of this episode, a lot of insurance
companies might earn 4 or 5 or 6%,
that's why when I have my money in the
insurance company and I begin to build up cash value of 100,000 or half a
million or a million dollars by the time I'm ready to retire let's say. That
million, I can just settle for the general account portfolio rate of let's say
5%. If the insurance company is earning 5, they usually need 1 of those
percentage points for them and so the net would be 4. You know,
I could pull out 40,000 a year tax-free and
not deplete principle, that's sort of typical in the financial services
industry or with indexed universal life, I can take that interest on my million
and give it to the insurance company to use as an options budget and they will
pay me whatever the index or indices that I choose,
this is called index universal life, and
they'll credit me and I've earned 8 and 12 and 16% and 25% and more because I
am linking my returns, okay, to an index. If the market goes up, I benefit but
if the market goes down, my million is still safe in the insurance company
earning 4 but I gave up the for sure 4.
Does that make sense? So, you don't lose. You
may not make very much with the market crashes but you don't lose. If I just
leave my money in that general account portfolio, I'm relying on the insurance
company to earn let's say 5 and net 4 and so that's their cost that's their
profit and if they are keeping an extra piece of that for their stockholders,
if
they're a stock company, they want to make sure they pay dividends out to the
stockholders because that's what they're supposed to do. And so, I found
sometimes I don't get quite as good of a net internal rate of return with some
of the stock companies. With a mutual company, many times, it is mutually owned
by the policy holders and so that money comes back in a credit or a dividend to
the actual insurance policy owner. So,
there
have been many times when I've structured these that I have actually achieved a
little bit better rate of return with certain mutual insurance companies, but
it's not just are they stock or mutual. It also depends upon their product, are
they stingy, are they generous, do they have a very good portfolio? And there's
probably only about a dozen insurance companies that I would recommend you put
money into for living benefits. So, it's more than just are they stock or
mutual, now you know the difference basically between the 2.
If you want to learn more, see the difference
between not only how a stock company may perform versus a mutual company, but
frankly, how their products are structured and how you fund it will make all
the difference in the world. That's why I point my students to professionals
who understand how to structure them correctly and help you fund them properly
so they turn into a tax-free cash cow at the best net internal rate of return.
So, if you've been watching and going, "Whoa!"
and
you're curious, I would strongly recommend you empower yourself by learning.
I'm passionate about giving people insights into opportunities that maybe they
didn't know existed before. So, if you'd like to learn more about concepts like
this and what I referred to, indexed universal life is my favorite vehicle
because I've been able to earn rates of return averaging 7 to 10% for the last
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it's
what I call the Laser Fund which stands for liquid asset safely earning
returns. This is how you can diversify and create the foundation for tax-free
retirement. You'll see why many, many people that I've advised will have 40 to
60 percent of their retirement income not even show up on their 1040 tax return
because they're using Laser Funds. So, it's actually 2 books in one. This side
is 200 pages,
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chapters with all the charts and graphs. If you flip it over to this side, 12
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Swiss Army Knife
If you go to laserfund.com, contribute a
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What do you mean by insurance?
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What is insurance and its types?
