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Reasons Why You Should Invest in Insurance Companies

by Conrad Morningstar 4 years ago in investing
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Choosing to invest in insurance companies can earn you more money than traditional stocks over time.

Not a lot of people want to invest in insurance companies. They don't even consider it. That's a mistake. Unfairly stereotyped as uninteresting, insurance stocks are practically sure things. Your investment will mature. The only downside is the time it takes to grow your initial sum into something worth mentioning. These are long term investments, but good things come to those who wait, and the benefits far outweigh the disadvantages.

Fast Growth Value

Insurance companies grow at a quick rate, even the small ones. That's primarily because the industry changes all the time. Not only do they have to keep up with the demands of the market, but insurance companies also change their policies and offerings to keep up with transitions in politics. That goes for new start up companies as well as established and recognizable names. The insurance industry is an excellent indicator of economic stability in that regard. Pay attention to insurance rates going up, and take that as your sign to invest in the company or plan of your choice.

One of a Kind Opportunities

Stocks and bonds have variety, but there are even more insurance companies to invest in once you start to poke around the industry. You're dealing with several types of insurance companies, after all. To entice people to invest, insurers tout the overwhelming number of opportunities for making money over the long term. You see, you aren't only dealing with the companies, you have access to a network of attorneys, different policies, and a variety of premiums and coverage, not just the insurers.

An Effortlessly Diverse Portfolio

Image via Helloquence/Unsplash

Because of all those opportunities, you open yourself up to a diverse portfolio when you choose to invest in insurance companies rather than traditional stocks. It's crucial to research the different kinds of insurance before you put in any money. Familiarize yourself with large and small companies to invest in, and broaden your horizons to include the full spectrum of insurers. You have the option of investing in health insurance companies, property and casualty insurance providers, and life insurance companies, or you may decide to invest your money with an auto insurer. For that matter, you can add variety to your investment portfolio by including two or more types of insurance.

The Potential for Soaring Profits

Almost everyone has some level of insurance coverage. Most folks, in fact, have many—home, health, vehicle, life. The people who hold the policies pay out thousands of dollars annually. That money ultimately pays for claims, the majority of which are small, such as a car accident, busted pipes in the house, or a trip to the emergency room. Big claims aren't frequent, not in comparison. That leaves the insurance companies with millions of dollars. Beyond that, insurance companies receive even more money each time the premium on a policy increases because of a claim.

That money goes into a reserve. Insurance companies insure themselves against potential disasters, in essence. That's the place where investors can profit, as it is a long term investment option and strategy to buy insurance stocks from the companies that appeal to you, and you will make money off of the interest earned by those enormous reserves. Just keep in mind that you don't want to invest in insurance companies that have a high percentage of large claims. Stay away from the car insurance company that promises to insure anyone regardless of driving record, for example. Conversely, a reputable company like Berkshire Hathaway is a surer bet.

Risk Aware Companies

Because they handle vast amounts of money, insurance companies are somewhat risk averse—but that's a good thing for both the insured and the investors. That reserve of cash is a safety net. Most insurance companies—the ones you can trust, anyway—aren't irresponsibly using premium payments. They don't take risks with investments themselves, so they don't take risks with other people's money.

Fewer Risks for Investors

Image via M. B. M./Unsplash

Since the insurance providers pay attention to risk factors and do their best to minimize loss, you won't risk as much, either. That's why many people choose to invest in insurance companies. You're not likely to lose all or even most of your initial investment. On the contrary, it will grow and mature over time, bringing in impressive dividends over the long term.

Stand Out Smaller Companies

In the stock market, the big brand names get all the attention. People who invest in insurance companies sometimes make that mistake, as well. They go for name recognition about anything else, assuming that BlueCross or All-State are the best choices. Smart investors root for the underdog. They understand that even a small insurance company will have a substantial reserve, provided they have a good claims record.

Small Fish in a Big Pond

Investors, in general, usually go for traditional stocks. In much the same way they trust the prestige of a well known name, they would rather invest their money in all the same old areas. They might branch out into gold or Bitcoin, but they rarely have any desire to invest in alternative investments to the stock market. That leaves the playing field wide open, increasing your chances of payback.

The Perks of Being Boring

Image via Min An/Pexels

To some investors, insurance is boring. That's true. There's no flash involved. Insurance companies themselves are risk-averse, after all. There are no cutthroat maneuvers. The industry is a conservative one. That's not boring, however. That's stable. Always look for stability before investing your money.

The Amateur Game

Investing with insurance companies or in insurance stocks is the ideal start for people who are learning how to start investing in their 20s or for people who don't want to be parted from their money. The risks are low, and the rewards are high, although you might have to wait for them. To invest in insurance companies, you have to be patient, otherwise, you'll pull out before growing your investment.


About the author

Conrad Morningstar

Astronomer, applied for SpaceX program. If not accepted, he will build his own spaceship. Dropped out of Ivy League astrophysicist program.

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