Most investors understand the idea that investing in a life insurance policy is an act of sound judgment, at least until the point when you can self-insure your loved ones against the loss of income or increase of expenses that will occur upon your death. In other words, this is protection for those you leave behind. However, if your estate is considerably large, you may not need insurance coverage, because the assets and cash that you bequeath your heirs will cover those costs and expenses insurance would have provided for. Whether you need the insurance product or not, you may be able to profit from investing in life insurance companies as an industry.

There are two main types of these insurance companies today. The first, and most prevalent, is shareholder-owned, like any other publicly traded company. The second type is owned by the policyholders, or “mutually owned.” Though this was once a popular format for these companies, there are few of them left still operating on this business model. Most investment opportunities are as shareholders in an insurance corporation. If you want a smaller, mutually-owned company to invest in as a policyholder, you can still find some options.

When choosing a company to invest in, there are several issues to consider, including financial strength, reserves, return on equity, return on investments, and reinsurance. Once, the insurance industry invested in basically low-risk investment vehicles. Modern insurance is more complicated because it has taken on some of the roles of the financial services sector and other health insurance branches. Investing in these companies that offer a variety of products will have a different amount of variables than investing in companies that simply offer straight insurance products.

Because the insurance industry bets on future outcomes as a routine business practice, the financial strength of the company and reserves available to cover an influx of claims on policies is a very important consideration. Investors should also check on the investment vehicles being chosen by the company for diversification, risk-level, and history of profitability. Reinsurance in very simplified terms is when insurance companies join with other insurance companies to insure against a huge loss, such as in a wide-spread catastrophic event. Finally, the financial strength of the insurance company is not valid if their liquidity is insufficient. They must be able to get cash to pay out on claims.