Category : General

Posted : Monday, March 1, 2021
Edited By : Nathan Elkind
Tuesday, March 2, 2021

Insurance as an Investment

Strong Family

The stock market has seen an influx of retail investors with high expectations. Housing prices are skyrocketing as supply struggles to keep up with demand. Even interest rates, after a decade of record lows, are starting to finally rise. The uncertainty, and volatility of traditional investment vehicles are being thrown into question.


What's the most prudent option?


Insurance sure is a great vehicle for investing in uncertain times. 


There are multiple ways to invest in Insurance. It can be as important as a career or as casual as a few shares of United Health (NYSE: UNH). Even buying insurance products like Life, Cancer or Specific risk policies are a hedge against monetary loss.


Insurance companies make money in any market condition. Most company revenue is produced from its “float.” The float of the insurance company is the funds kept for claims, operating expenses and investments. These investments generate the lion’s share of revenue for most companies. Traditional companies invest in bonds or other safe assets. More aggressive insurers have chosen to invest in equities and start-ups.


Insurance is boring, and larger companies aren’t prone to volatility. If a company chooses to back risky investments, they can still depend on a net positive revenue from their insurance policies. Insurance sales are guaranteed by government entities like medicare, and "minimum liability" laws. Business stays steady when it’s illegal not to buy the product.

 


Investing your time as an insurance agent can become a lucrative career. Sales can be made from anywhere, renewals are abundant, and there’s no inventory to worry about. Insurance producers can contract with multiple companies. With only a laptop, they can provide thousands of insurance products.


Insurance companies are happy to contract with a go getter salesman/saleswoman. With a constant flow of customers, competition is the only threat to most insurers. This hyper competitiveness amongst insurers is why insurance ads are so ridiculous. It also plays into how commissions are paid to salespeople. Companies are so keen on stealing rival business, that they will only pay commission if the sale is to a rival’s customer.


Unlike other sales spaces, insurance companies pay renewal commissions on most products. These renewals can last anywhere from 12 months, to the entire life of the policy. As renewals stack, income increases over time. Flexibility is also unparalleled as an insurance agent. Insurance sales affords the ability to sell from the office, in a home or even remotely.  As independent agents, insurance producers also decide on their own hours.


Insurance sales stay consistent during economic slowdowns. Sales agents never have to worry about being laid off. They can raise or lower their income by increasing their own activity.

 


Investing in Insurance companies is a sure fire value play for those looking to purchase equities. Most publicly traded insurance companies have a low price to earnings ratio, and do well during market downturns. These companies put their shareholders first, and are often good for a consistent dividend.


Insurance stocks often trade at very low prices based on earnings valuations. As a boring, consistent investment, these companies are overlooked by casual investors. Their prices stay low and reasonable, and grow along with revenue growth.


Even during market disruptions, revenue is consistent and reliable. As stated before, insurance products aren’t cyclical, and do not have sensitivity to supply chain issues. As a financial product, they can be produced and sold anywhere at any time.


Insurance company revenues are mostly made on their own investment portfolio. These companies often put their float excess money into a fund that earns consistent returns.

 

Here are 3 Insurance Stocks to get your portfolio Started:

 

UNH: United Healthcare is a well established, “Blue Chip” stock. It is a staple of any growth and value portfolio, and has returned an annualized 35% return over the past 5 years. It’s price to earnings ratio is around 20, which is high for an insurance company, but nearly half of the collective market’s Price to Earnings of 39.

 

CNC: Centene Corp. has a Market capitalization 1/10 that of United Healthcare. With a similar Price to Earnings of 18 and an annualized return of 5%, Centene may seem like a worse choice. This company is actually a particularly good hedge against economic downturns. A large part of their balance sheet is medicaid business. Their revenue can actually increase with uncertain times, and high unemployment.

 

LFC: China Life Insurance adds another layer of safety to a portfolio. This Chinese based life insurance company reduces the risk of US policies affecting returns. The equities price has fallen over the past five years, but the growing revenue and P/E ratio of 8 suggests significant room to grow.

 

Investing in an insurance policy hedges against potential loss. While the idea of making money sounds great. Humans are much more likely to avoid a risk than seek a reward. The psychological pain of losing $5 is far greater than the joy of making $5. By investing in a Life, Health, Limited Risk, Cancer, or any other Insurance policy guarantees that financial loss isn’t in the policy owner’s future.


Every insurance policy provides monetary compensation for a loss. The loss of one’s health affects their wellbeing day to day, and often affects their ability to earn money. The loss that comes with a house fire can destroy a family’s security, both in terms of their peace of mind, and their financial situation.


Insurance policy payouts can even out the fluctuations in our long term finances. A successful investment portfolio has a consistent upwards trend. Occasional financial hits can reduce the overall return of a portfolio significantly. By preventing potential dips, insurance policies provide consistency for other investments to grow.


Additionally, many whole life and annuity products can function as insurance and an investment. Both annuities and life insurance can provide inheritance to family members without a trust or probate. Annuities are known for their income generating properties, but life insurance can also provide a fixed rate of return. Fixed Indexed Annuities are the most popular form of Annuity. They provide a minimum return while tracking stock market indices for the chance at higher returns.


 

Insurance is the most dynamic and profitable industry to invest in. Whether it’s time, savings, or premiums, insurance provides a consistent and significant return. As a career, it’s flexible, stable, and lucrative. As an investment vehicle, it is stable, profitable and consistent. As a product, it provides exactly what you want, often at competitive price points. 

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