This lie is actually two lies in one: “insurance companies are interchangeable,” and “insurance companies all want the same thing: my money.” As with the insurance poor lie, it’s easy to think that all life insurance companies are the same or are just in it for the money when you don’t understand the industry yet. Since you’re reading this book, you clearly want to understand life insurance, which means you won’t want to lump all companies and policies into the same bucket. And while there are some similarities between companies, there are also many differences.
First of all, not all companies offer the same types of life insurance. If you’re looking for a particular type of life insurance, like whole life, check and see that the companies you’re interested in actually have what you want–because not all life insurance companies provide whole life.
There’s also the difference between mutual companies and stock companies. Mutual companies are owned by the policyholders, who have voting rights regarding the board members who manage the company, and are required by law to return all of their profits to the policyholders in the form of a dividend. That is, with these companies, your policy actually pays you. If receiving a dividend in addition to growing your cash value on a guaranteed basis is an important feature for you, a mutual company is the way to go.
Stock companies, on the other hand, are owned by shareholders and their goal is to maximize shareholder value. They are beholden to both policyholders and shareholders, meaning they have to pay two different groups of people with two different sets of priorities. This tends to lead to much less stability. Does the old adage “you can’t serve two masters” ring a bell?
There are hybrids of mutual and stock companies, called mutual holding companies. As you might expect, they are more stable than stock companies, but not quite as beneficial to the policyholders as mutual companies. (Note: having the word “mutual” in its name doesn’t automatically make an insurance company a mutual company. Liberty Mutual, for instance, is a stock company. Similarly, not all mutual companies have that word in their names, either.)
From our research over many years, we’ve determined that most whole life policies from mutual companies are very similar. There may be a few differences in policy rules from one company to the next, but for the most part, over the long term, all whole life policies from mutual, participating (dividend-paying) companies perform pretty much the same. So since you’ll be getting essentially the same policy everywhere you look, which person helps you get that policy becomes more important than which company.
It’s a little like going out for a good cheeseburger. You don’t just get your cheeseburger at Red Robin or Fuddrucker’s over Steak N Shake or Whataburger, say, because of the burger itself. You may like the actual cheeseburger better at one burger joint or another, but at the end of the day they’re all cheeseburgers. (Unless you’re going to In’N’Out Burger, of course, in which case the Double-Double cheeseburger really is the best.) What usually really matters is the kind of restaurant experience you want to have. If you want a leisurely, family-friendly dinner place where the staff sings to you on your birthday, Red Robin’s got you covered, but if you only need a quick bite on the way back from a late night out, Whataburger is probably the better choice.
In the same way, when you’re shopping for a whole life policy, you want to focus on who is helping you (the individual agent or advisor) and what you want to do with the policy (your strategy) over and above the policy itself. Your life insurance policy will be with you for a long time. You don’t want to be stuck with an advisor that you just don’t get along with on a human level. Choose an advisor you feel comfortable with and that you can trust. If you don’t feel like you can have a conversation with or ask (and get answers to) honest questions of your advisor and other people in the company, it probably won’t be the right company for you.