What is a "mutual insurance company"?

A mutual insurance company is defined as an entity owned by its policyholders, which distinguishes it from other types of insurance companies that may be owned by shareholders or investors. In a mutual company, policyholders have a vested interest in the financial performance of the company and may receive dividends based on the company's profits. These dividends can take the form of cash payments, reductions in premiums, or increases in the policy's cash value. This structure aligns the interests of policyholders and the company, as policyholder satisfaction and financial health contribute to the company's success.

In contrast, an insurance company focused solely on stock performance would primarily prioritize the interests of its shareholders instead of policyholders. A company that only offers term life insurance policies does not align with the broader definition or characteristics of mutual insurance companies, which can provide various types of coverage. Lastly, a non-profit organization providing free insurance does not reflect the typical operational model of mutual insurance companies, which operate with the intent of mutual benefit to policyholders rather than providing services at no cost.