MW Mutual-insurance companies are paying record-breaking dividends to their customers this year. Is using one right for you?

By Genna Contino

The answer depends on the type of insurance you're shopping for.

While mutual-insurance companies can distribute dividends to policyholders, stock companies sometimes offer more competitive premiums.

It feels like insurance is getting more expensive by the second, but what if your provider actually paid you back? While most carriers pocket your premiums, mutual-insurance companies are owned by their customers - and this year, they're sending out record-breaking dividends to policyholders.

Jumping ship to a mutual-insurance company doesn't necessarily guarantee a better deal, but it's a calculation many are weighing as high insurance costs strain budgets that are already feeling the inflation squeeze. The consumer-price index rose to a nearly two-year high in March, with items such as $4-a-gallon gas, airfare, clothing and doctor visits driving up prices.

The difference comes down to the business model. Stock companies like Progressive $(PGR)$ or Allstate $(ALL)$ answer to Wall Street shareholders, while mutuals like Northwestern Mutual or State Farm Mutual answer to their policyholders. If there's excess profit at the end of the year, a mutual company can return that cash to its policyholders rather than outside investors.

Deciding whether to switch requires looking beyond a possible dividend check. The actual financial benefits depend on whether you are insuring your car, your home or your life - and whether the potential long-term gains outweigh the higher upfront costs.

Read more: You could be paying an extra $2,000 for home insurance every year because of this financial baggage. Here's how to fix it.

"Ultimately, it's not about mutual versus stock," says Justin Rice, a certified financial planner at Hamilton, N.J.-based Personal Wealth Strategies. "It's about which option delivers the better net value over time, based on realistic assumptions, consistent performance and how the benefits are actually being used."

Don't count on a dividend with home and auto-insurance mutual companies

In February, State Farm announced that it was returning $5 billion to auto-policy holders, the largest payout in the company's history. How much individual vehicle owners received from this dividend depended on the premiums and state, but it averaged out to about $100 per insured car.

This was a nice boost for State Farm policyholders, but the mutual company does not give out dividends every year. Many life-insurance mutual companies are known for consistent payouts, but mutual companies like State Farm that sell home and auto insurance might opt to lower premiums or keep the company financially strong when they've had a good year instead of issuing a dividend, according to the Insurance Information Institute $(III)$, an industry-backed nonprofit.

Read more: Buying a car out of state can save you thousands of dollars - but ask these 3 questions first

If stock companies issue dividends, they are paid out to the company's shareholders, who may or may not be policyholders.

While it's important to understand how mutual and stock companies work, the III recommends prioritizing factors such as a company's coverage options, its reputation for handling claims and availability in your region when shopping for home and auto insurance. Insurance shoppers can also measure an insurer's financial strength by checking its credit rating through agencies like A.M. Best, S&P Global $(SPGI)$, Fitch or Moody's $(MCO)$.

"$1 million can become $2 million or $3 million" with reinvested life-insurance dividends

Northwestern Mutual also announced a historic $9.2 billion payout in 2026, according to a company news release, continuing a 155-year streak of distributing dividends to its policyholders.

The company did not say how much its dividend payout averaged per policyholder this year, but some "longtime clients are receiving enough in dividends to cover the full cost of their premium," says Northwestern Mutual financial adviser Michael Calamaras. Mutual companies New York Life and MassMutual have been paying a dividend every year since the 1800s as well.

These dividends typically apply to people with "whole life" policies, which cover someone for their entire life as long as premiums are paid on time. The policies are designed to provide their family with a lump sum of money after they die to cover things ranging from funeral expenses to outstanding debts.

The Moneyist: 'She's a smoker': My mother, 55, has no car and no job. Should I buy her life insurance?

While they're still alive, policyholders can withdraw their dividends as cash that is generally not taxed as ordinary income, says Dick Weber, president and primary consultant of The Ethical Edge, a fee-only insurance analytics and consulting firm. Another common practice is using the dividend toward "paid-up" additions, which is additional coverage that increases the total death benefit and can compound to earn even more dividends in the future.

"From age 30 to a hypothetical age 90 actual death, that could increase the death benefit two or threefold," says Weber, who is also treasurer of the Life Insurance Consumer Advocacy Center. "One million dollars can become $2 million or $3 million."

But those dividends aren't free money - they're funded in part by the premiums policyholders pay upfront, which Weber says can be higher than other policy structures or policies offered by stock companies.

Dollar Signs: Instagram shows me at least 4 ads a day for indexed universal life insurance. Do I need it? I'm 39, single, with no kids.

Elizabeth Kusmider, a Houston, Texas-based certified financial planner who founded the life-insurance-planning firm Kusmider Consulting, says she's often shopping for a cheaper alternative carrier for her clients with existing policies from mutual companies because of this.

"Other products can be designed to have guarantees and lower internal costs," Kusmider says. "Knowing what the client needs, their risk tolerance and their goals help us to best serve them and put their coverage into the right products."

For example, Kusmider says one of her high-income clients was paying more than $35,000 a year for $2 million in whole life coverage from a traditional mutual insurer. She replaced the policy with a lower-cost permanent plan and supplemented it with term insurance - which provides protection for a set period rather than for life - allowing the client to more than double total coverage while cutting premiums by nearly 30%.

However, the difference in premiums may look less pronounced for the average policyholder, who purchases anywhere from $20,000 to $500,000 in coverage. Weber says that, in his experience, mutual insurance companies' consistent dividend payouts tend to make up for an expensive premium.

"Any potential premium cash flow difference in the first few years will be more than made up" with dividends from a mutual company, Weber says.

Read next: Soaring healthcare costs are forcing people to make troubling trade-offs, like skipping meals - and the situation is about to get worse

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Genna Contino

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 16, 2026 12:24 ET (16:24 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.