Insurance companies don't have to pay taxes on the entire cash flow they receive as premiums. That is because only the surplus left over after the claims on the policies issued have expired is considered as income.
Other kinds of businesses, including other financial entities, must pay taxes on revenue and profits before investing.
But insurance companies get to invest all the money first. This is a stupendous advantage.
It's like having the freedom to invest your entire savings right up front and paying taxes on your income a decade later.
But insurance is not an easy sector for investors to figure out.
The financial statements are full of jargon. And in fact they don't resemble financials of any other sector.
Watch this video to know how you could create wealth in insurance stocks.
Tanushree Banerjee (Research Analyst), is the editor of Stock Select and Forever Stocks. Tanushree started her career at Equitymaster covering the banking and financial sector stocks and scrutinising RBI policies. Over the last decade, she developed Equitymaster's research processes that helped us pick out various multibaggers, across all sectors. A firm believer of "safety first" when it comes to investing, Tanushree closely follows the investing philosophies of Warren Buffett, Jeremy Grantham, and Joel Greenblatt.
Equitymaster requests your view! Post a comment on "How to Evaluate the LIC IPO?". Click here!
Comments are moderated by Equitymaster, in accordance with the Terms of Use, and may not appear
on this article until they have been reviewed and deemed appropriate for posting.
In the meantime, you may want to share this article with your friends!