What characterizes mutual insurance?

Mutual insurance is characterized by being owned by the policyholders rather than shareholders. In a mutual insurance company, the policyholders collectively share ownership and have a direct stake in the company's management and profitability. This structure allows mutual insurers to issue participating policies, which enable policyholders not only to receive coverage but also to share in the company's surplus through dividends or reductions in future premiums.

These participating policies are a distinct feature of mutual organizations, reflecting the principle that policyholders benefit from the insurance operations since they are also the owners. When the company performs well, the profits can be distributed to the policyholders, reinforcing their investment in the company.

This structure contrasts with companies that operate for profit, which serve the interests of their shareholders and do not typically issue participating policies. Additionally, the dividends received from mutual insurance policies are generally not fully taxable to the policyholders to the extent they represent a return of premium.