The healthcare industry has different sub-units, like hospitals, health insurers, pharmaceutical companies, and devices, and each is different in its way. Healthcare investment is a choice for many people looking to grow their wealth over time.
Under life insurance, your insurer promises to pay your chosen beneficiary a certain amount upon death. But you can also use it to build up cash value and have enough money when you need it, depending on the type you choose. Keep reading to discover the importance of healthcare investment and life insurance.
Deciding On A Healthcare Company To Invest
The healthcare industry is constantly evolving, and new technologies, drugs, and treatments are continually being developed. Due to this, the entire landscape is always shifting. As an investor, you need to keep up with the changes.
When choosing a healthcare company to invest in, you should be aware of the different sub-sectors and trends. Notably, these can impact your investment in the short run and long term.
Investing In Pharmaceutical Companies Stocks
Pharmaceutical companies that make drugs often float their stocks on the stock exchanges. These companies make money by selling drugs to hospitals and pharmacies nationwide.
They also spend tidy amounts on research, development, staff costs, and utilities. When investing in these companies, you need to understand their overall framework, including profit generation and costs.
Clinical trials and data outcomes can also affect the companies’ profits. Positive reports can cause the stocks of such companies to appreciate quickly. On the other hand, negative surprises can lead to lower prices.
Other factors, such as low prescriptions, FDA warnings, loss of patents, and declining market share, can affect overall investments.
Healthcare Device Companies Stocks
Healthcare device companies are responsible for developing products for diagnosing, treating, and preventing diseases. These products can range from simple medical supplies to more complicated medical equipment.
These companies are always searching for new and better ways to improve their products and boost their effectiveness. As a result, they may experience strong growth as they bring new products to market.
Investing In Healthcare Insurance Stocks
When investing in health insurance stocks, there are some things that you need to keep in mind. First, it’s essential to understand a company’s income mix, costs, and how it makes money. Some companies generate income by selling policies to individuals, Medicare, and Medicaid.
You may also need to analyze the insurance industry and the factors affecting the revenues of these companies. When individuals enroll for health insurance, they must pay monthly or yearly premiums and this accounts for a huge percentage of the insurance companies’ revenue. If you’re serious about this move, you should first discuss it with a trusted Medicare insurance broker who can provide a wide range of valuable insights into the industry.
Premiums Can Impact Healthcare Investment
Across the states, citizens pay varying premiums each month. For instance, a Kaiser Family Foundation research found that the average cost of health insurance is $7,739 and $22,221 for an individual and family.
Typically, these costs can vary depending on the policy, geography, state, deductibles, and age. The cost of treatment and pharmaceutical drugs generally influences the high premiums.
Medical Costs Can Impact Healthcare Investment
In most cases, health insurance companies pay for the cost of treatment which can impact their overall revenue and your investment. The U.S. spends a lot on health-related issues; in 2020, healthcare averaged $12,530 per person. Many reasons have contributed to high costs. For example, the aging population of people above 65 is about 17% of the entire population.
Usually, this category spends a lot more on healthcare compared to other groups. Overall, the Medicare program allows individuals to enroll once they turn 65.
Health insurance is a major talking point for most people in the U.S. due to the high average cost and lack of universal coverage. Data from HeallthCare.gov proves that paying for medical expenses can be untenable for most people without a health insurance policy.
It can lead to bankruptcy and increase the debt burden for most people. For example, fixing and treating a broken leg can cost up to 7,500, and admission to a hospital can cost you about $30,000.
A 2020 National Nurses United(NNU) study found that the average hospital charge is $471 per $100 of the total cost. People without insurance pay more per hospital pay. These costs may vary depending on the state, hospital, and illness.
Here is a table that illustrates the total cost of hospitalization.
| Illness | Average Cost |
| Arm or Leg Cast | $863 |
| Wound Preparation | $5,690 |
| Normal Pregnancy and Delivery | $14,847 |
| Back Surgery | $25,289 |
| Kidney Stone | $28,817 |
| Hip Replacement | $37,857 |
| Skin Substitute Graft | $6,282 |
| Appendix Removal | $17,581 |
| Arm or Wrist Fracture | $21,427 |
By actively monitoring and keeping tabs on what is happening in the insurance industry and the various costs impacting revenues, you can better decide where to invest.
Examples of Healthcare Stocks
Healthcare spending accounted for 4.2% or $4.3 trillion of the total domestic budget in 2021. The sector may appeal to many investors if the numbers add up.
Below, we highlight examples of healthcare stocks that mostly interest investors.
| Type of Stock | Market Capitalization | 5 Year Average Annualized Return |
| UnitedHealth Group Inc (UNH) | $512 billion | 22.5% |
| Johnson & Johnson (JNJ) | $453 billion | 6.8% |
| Eli Lilly and Co (LLY) | $269 billion | 9.3% |
| Abbott Laboratories (ABT) | $174 billion | 14.4% |
| Danaher Corp (DHR) | $186 billion | 22.6% |
| Merck & Co Inc (MRK) | $253 billion | 15.9% |
| Novo Nordisk A/S (NVO) | $240 billion | 18.2% |
Source: Forbes
Advantages of Healthcare Investment
Generally, healthcare companies have steady revenues and returns. Whereas nobody plans to fall ill or get hurt, most people require medical care at some point in their lives. Healthcare insurance involves buying out a plan to cover medical costs in the future.
Secondly, the healthcare industry in the country is developing very fast compared to other sectors. Technological advances, the treatment of chronic diseases, and the aging population fuel this growth. Thirdly, spending on health is projected to grow at 5.4% for the next few years.
Risks of Investing in Healthcare
As alluring as it may be, there are several risks involved in investing in healthcare stocks. The overall cost of healthcare is a concern by the government and untenable for most Americans.
Agitation for affordable healthcare by the citizens can significantly affect investment in healthcare. In addition, the healthcare industry is highly regulated, and government policy changes can affect healthcare companies’ fortunes.
For example, the Affordable Care Act was developed to curb rising healthcare costs, and this effectively reduced yearly increases in payments to hospitals under the Original Medicare program. Therefore this may have put pressure on profits for many companies in the healthcare sector.
In addition, like other stocks, healthcare stocks can be affected by changes in the overall economy. During inflation, people may cut back on their spending on healthcare, which can cause stock prices to drop. This sector is very competitive, and developing new products and technologies can dramatically render existing products obsolete.
Life Insurance Investment
Life insurance provides financial security to your loved ones in the event of a demise. It’s also an investment tool that allows you to accumulate cash value over time and use the annuities to finance your expenses during retirement.
Types of Life Insurance
There are two types of life insurance policies: term and permanent life insurance. You may get started by filling out a policy with an insurance agent or shop for life insurance online. Choosing the right plan may depend on your financial goals. A financial advisor can recommend you the best option depending on your needs.
Term Insurance
As the name suggests, term life insurance provides coverage for a certain period, mostly 10-30 years. In case of demise, your loved ones receive the death benefit, and the policy ends.
Since term insurance plans don’t have a cash value element, they tend to be more affordable than other types of life insurance. Therefore they can be a good choice if you’re looking for temporary coverage.
Permanent Life Insurance
Unlike term life insurance, permanent life insurance remains in force throughout your life. The policies have a cash value component that grows over time. Depending on your insurer, you may access the amounts via loans or withdrawals.
There are four types of permanent life insurance coverages; Universal life, variable life, whole life, and variable universal life insurance.
Whole Life Insurance
Whole insurance is the most common and offers a death benefit and a savings account. Usually, the savings component grows depending on the premiums that you pay.
Universal Life Policy
Universal life policy offers much flexibility since you can boost the death benefit upon passing a medical examination. Additionally, the cash value earns you interest depending on the market.
Upon accumulating interest on money, you may choose to reduce your premiums. But this can quickly deplete your accumulation, and your policy may lapse early.
Variable-Universal Life Insurance
With this policy, you can enjoy the features of universal and variable life insurance policies. It also has risks and benefits, and you may alter your premiums and death benefit, a feature of universal life insurance.
Variable Life Insurance
This life insurance policy features a death benefit and savings account to enable you to invest in money market funds, stocks, and bonds. Your cash value may snowball; however, it’s a risky option since poor performance can deplete your death benefit and cash value.
You can check with your insurer if they have a guarantee to prevent the benefit from falling below a certain level.
Advantages of Life Insurance Investment
Life insurance can be a valuable tool for financial planning because it can provide a death benefit to your loved ones and help cover final expenses and other debts. It can also provide peace of mind in knowing that your loved ones will be supported financially if the inevitable happens.
They can use the death benefit for estate planning if there are any existing debts at the time of death. Therefore your loved ones may not be burdened by costs or expenses once you’re gone.
The cash value component in a life insurance policy will come in handy during retirement. If you invest early, your cash value will grow over time; therefore, you can use the money to pay for your expenses in the future.
Another advantage is that you can withdraw the cash value anytime with no restrictions. Unlike other investments, such as the traditional IRA with age restrictions, the cash value offers flexible withdrawals. Further, the withdrawals are tax-free, but you may pay tax on gains if you cash out more than the policy requirements.
If you decide to take out loans, you could escape paying taxes on these loans. However, interest may be payable.
Risks of life insurance investment
Life insurance investment allows you to provide financial security to your loved ones if you’re not around. However, it’s not without risk. In some cases, the death benefit may be less than the premiums paid, and the policy may lapse before death in the case of term insurance. Therefore, you may lose your entire money paid in premiums if you live to be very old.
Conclusion
Even though healthcare investments and life insurance are intangible assets, they offer a stable and secure investment tool. Normally, insurance companies set a certain amount of money to pay out claims.
Therefore, their stocks tend to be very stable. As noted with healthcare, the stocks are also steady because people will always require medical care at some point in their lives. Even during a recession, people still book doctors’ appointments and fill up prescriptions.
Ultimately, putting your money into healthcare and life insurance requires a multifaceted strategy that involves understanding the underlying factors.