A mutual insurance company is owned by its policyholders whose ownership interests don't exist in the form of stock. The insurance policy sets the terms of the policyholder's ownership. When a mutual insurance company demutualizes and becomes a stock company, an eligible policyholder generally elects to receive newly issued stock in the new stock company or cash. At the same time, the insurance policy is modified only by changing the name of the issuing company and eliminating the voting and liquidation rights. Generally, a demutualization is a tax-free reorganization under Internal Revenue Code section 368. For more information, refer to Publication 550, Investment Income and Expenses PDF. If the demutualization qualifies as a tax-free reorganization and you elected to receive stock, for tax purposes you'll be treated as having exchanged your voting and liquidation rights for stock of the demutualized company. Your holding period for the new stock includes the period you held the policy in the former mutual company. You won't recognize any gain or loss on the exchange of the voting and liquidation rights for the stock. If you elected to receive cash instead of stock in the tax-free reorganization, you're deemed to have received the shares of stock and then to have sold them back to the corporation (i.e., redeemed your shares). This may result in capital gain reportable on Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses PDF and on Form 8949, Sales and Other Dispositions of Capital Assets PDF. If you owned the policy for more than one year as of the date of the demutualization, the gain is treated as long-term capital gain. If you owned the policy for a year or less, the gain is short-term capital gain. Refer to Internal Revenue Code section 1223(1).