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Investing in insurance stocks

The industry is well-positioned to weather recessions but is vulnerable to legislation.

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The big names in this industry are well-established and have a history of healthy dividends. But not all insurance categories are recession-proof and all must answer to government regulation.

What are insurance stocks?

Insurance stocks are stocks from insurance companies. A variety of subcategories exist in this industry including:

  • Car
  • Health
  • Home
  • Life
  • Pet
  • Travel

Many insurance stocks offer exposure to multiple subcategories by offering a variety of different insurance policies, like Allstate. Other companies specialize in only one type of insurance and offer a more targeted investment opportunity, like Trupanion — a pet insurance company.

Why invest in insurance stocks?

Since the products they offer can be considered a type of staple, insurance companies tend to perform well — both in times of economic strength and in times of economic hardship. Plus, well-established insurance stocks have a history of strong and steady dividends — an added bonus for investors seeking a steady return.

Many insurance stocks are considered recession-resistant. That’s because even in periods of economic downturn, people need to maintain their insurance coverage. The staying power of the industry can’t be understated; insurance has been around for hundreds of years and provides a service we’ll continue to need for the foreseeable future.

Regardless of geographic location or socioeconomic status, people rely on insurance policies to protect them from risk. Ongoing demand helps bolster this industry’s ability to weather periods of recession.

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Risks of investing in insurance

Insurance stocks are far from invulnerable, and the same economic conditions that safeguard some categories of insurance may put others at significant risk.

Take health insurance companies as an example. When unemployment rates rise, fewer people are employed and able to pay into employer-sponsored health insurance plans. This impacts the provider’s bottom line and has the potential to detract from the value of its stock.

Insurance providers are also subject to government regulation, which means that new legislation has the potential to impact the market in a powerful way.

Insurance stocks

There are plenty of pure-play insurance stocks available, but with numerous types of insurance on the market, you’ll need to learn more about the individual offerings of each company before you invest.

  • The Allstate Corporation (NYSE: ALL)
  • Berkshire Hathaway Inc. (NYSE: BRK-B)
  • The Progressive Corporation (NYSE: PGR)
  • Trupanion, Inc. (NasdaqGS: TRUP)
  • Ping An Insurance (Group) Company of China, Ltd. (HSE: 2318.HK, OTC Markets: PNGAY)

What ETFs track the insurance category?

A variety of options exist for investors interested in insurance ETFs, from property insurance ETFs like the Invesco KBW Property & Casualty Insurance ETF to broader insurance ETFs that capture health, life and property insurance companies, like the SPDR S&P Insurance ETF.

  • iShares Equal Weight Banc & Lifeco ETF Common Class (TSX: CEW)
  • BMO Global Insurance Hedged to CAD Index ETF (TSX: INSR)
  • Invesco KBW Property & Casualty Insurance ETF (NasdaqGS: KBWP)
  • iShares U.S. Healthcare Providers ETF (NYSEArca: IHF)
  • First Trust Financials AlphaDEX Fund (NYSEArca: FXO)
  • iShares U.S. Insurance ETF (NYSEArca: IAK)
  • SPDR S&P Insurance ETF (NYSEArca: KIE)

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Before you can invest in insurance stocks, you need a brokerage account. Explore your options by features and fees to find the account that best meets your needs. Learn more in our guide to opening a stock trading account.

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Bottom line

Many people rely on insurance coverage to protect themselves, loved ones and property, so the insurance sector is well-positioned to weather the highs and lows of a shifting economy. But there are unique challenges associated with different types of insurance. Before investing, make sure you carefully research companies and compare stock trading platforms.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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