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When you buy a policy
in a mutual insurance company, you obtain two kinds of rights: ownership
rights and your surviving policy contract rights. Ownership rights
result from your status as an owner of a policy and thereby an owner
of the company. Contract rights refer to your rights as a customer
or policyholder of the company. When the company demutualized, your
contract rights (what you could expect from the company as a customer)
did not change. The policy survived according to its original terms.
What did change, however, were your rights as an owner of the company.
The Plan of Demutualization that was approved by voting owners and
insurance regulators provided a way to convert the old ownership
interests of policyholders into the new form of ownership: as shares
in the new stock company. This was accomplished on a prorated basis,
based on the value of each policy.
The Plan also established the criteria that policyholders must have
met to be eligible to receive compensation in exchange for their old
ownership rights. This compensation would be distributed in the form
of shares, cash in lieu of shares, or policy enhancements, based upon
certain factors. In general, to be eligible a policy must have been
in force on a set date, not yet matured, and not lapsed due to non-payment
of premiums.
Click here to see an illustration of the conversion process.
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