One of the most common questions we hear form clients interested in purchasing life insurance,  is whether or not to buy from a stock or mutual company. They offer similar products, but mutual companies have one overriding characteristic that benefits policyholders; they operate for the long term benefit of the policyholders. A stock company does the same, but for their shareholders.

At first glance, it may seem as though the products are priced similarly. They are. However, whether or not they maintain that pricing is dependent on little known clause inside the policy called cost of insurance or COI. Most consumers typically think that policy performance is based on the crediting rate of the cash values. What they don’t

understand is that even if they receive high crediting rates, it can all be offset by an increase in the COI.

The New York Times published an article in late August 2016, “Why some Life Insurance Premiums are Skyrocketing”. It brings to light how some carriers decided to raise the COI on some older inforce Universal Life Policies.

The article points out how some policyholders need to make painful choices in terms of paying unexpected premiums or cashing out the policy for its cash value. Other, who are still healthy, are fortunate enough to do a life insurance 1035 exchange  to a different lower priced carrier.

It is important to mention that all the carriers mentioned in the time’s article are stock companies. Mutual companies on the other hand, are less likely to raise COI. In fact, many, such as Penn Mutual and Pacific Life have never raised their COI. Hopefully, those policyholders who were fortunate enough to do a 1035 exchange life insurance move, did so to a mutual carrier.