1.848 billion euros. This is the outstanding balance of life insurance contracts as it is in 2023. This a very significant figure, which reveals the confidence of the French in this savings product. But like all investment vehicles, life insurance has advantages and disadvantages.
And if you are hesitant to embark on the adventure of investing in life insurance, it is important to take both into consideration. So, without further ado, discover the disadvantages and advantages of the life insurance contract. Is this really an investment of opportunity?
Advantages And Disadvantages Of Life Insurance
The investment world is not a binary medium. It is impossible to determine until you have made, whether a choice is right or wrong. On the other hand, there are figures and factual statistical data to consider.
This essential data allows you to better understand how life insurance works. And above all, all its advantages for your financial well-being. From its rationale to its effectiveness, discover the positive effects of a life insurance policy.
1 – A free Tax Envelope
The first advantage of life insurance concerns its basic operation. In fact, if you’re wondering what life insurance is for, the answer is simple: to help individuals save money and make it grow.
Regardless of the project behind it and the savings conditions, each life insurance must be able to correspond to the policyholders and their needs. It is for this reason that this contract is considered a fiscal envelope. You place in this envelope what you want: conditions of profitability, rate of return, and capital invested…
You also have the choice between two types of life insurance, mono-support or multi-support:
The Mono-Support Contract:
with guaranteed capital and a low rate of return, which makes it possible to secure your investment in the stable euro funds, managed by the State. You take no risk, but you gain little.
The Multi-Support Contract:
- which links the stability of funds in euros with the chances of profitability of the units of account. Units of account are assets influenced by market fluctuations.
- Your life insurance can therefore fully resemble your project and your investor profile. You don’t take risks you don’t want to take, and you only invest what you feel like investing.
2 – The High Rate Of Return
In a more pragmatic way, the undeniable advantage of the capitalization contract that is life insurance is its high profitability.
Of course, it all depends on what you are investing in. While euro funds returned an average of 1.10% in 2020, unit-linked funds generally have a higher rate of return, which varies depending on the markets and sectors concerned.
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But in any case, these two rates are always higher than those of booklets A, young people’s booklets, or PEL. So, if you’re wondering why to take out life insurance, it’s simply because it’s the investment product that has the best chance of making you money. And that is exactly the role it fulfills.
3 – Adaptability To Your Profile
Also, as stated in the first benefit, you can give your life insurance any direction you want. Thus, life insurance has an essential utility: to help you prepare for a future project.
Whether it is for the transmission of your assets to your heirs, to finance the studies of your children, or even life insurance for your own retirement, you can create a contract that corresponds to your project.
However, your project is determined by a specific duration and specific requirements in terms of risk-taking. There is no better life insurance: it’s all about having a contract that matches your goals.
It is to help you get the most out of your life insurance that at Forward You, our policyholders can make an appointment with an advisor to open a file. Whether in video or in person, we help you define exactly your expectations in terms of investment.
The duration of the contract, the possible risk-taking, and the project you are preparing: we take everything into account to offer you life insurance in your image.
4 – The Flexibility Of The Contract
Beyond the conditions and prerogatives of execution of your life insurance, it is a flexible contract in essence. Contrary to popular belief, the money you invest in your life insurance is never blocked. Perfectly available, you can recover it whenever you want by making purchases.
Redemptions during the contract may be total or partial. They thus involve recovering all or part of your capital and capital gains.
If you recover all of your life insurance, the contract closes and you lose tax precedence, which can have many advantages.
However, if your life insurance contract comes to an end, you can choose to recover your capital in the form of a life annuity or otherwise, depending on what you prefer. In any case, your investment is perfectly liquid and available: you can recover it whenever you want.
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5 – An Attractive Tax System
It is important to know that each partial redemption is made according to a distribution of capital gains and capital. And since only capital gains are taxed, part of your redemption is tax-free. This is a tax benefit of life insurance.
The taxation of life insurance can seem quite complex but is always advantageous. In reality, taxation depends on the age of your contract, the age you have at the time of taking out life insurance, and the time when the payments were made.
In any case, you benefit from an important advantage of life insurance after 8 years of the contract. Reduced taxation and an annual allowance of €4,600 or €9,200 for a couple: what it takes to make it one of the most attractive investments.
6 – Transmission Of Capital Outside The Estate
Finally, a significant advantage of life insurance and its operation is in the notion of succession. Indeed, this contract is often selected with the aim of transferring assets. Many policyholders choose life insurance because capital transmitted within the framework of this support follows taxation much more advantageous than that of inheritance rights.
And for good reason: life insurance is exclusive of inheritance for all premiums paid before the insured turns 70. And the beneficiaries of life insurance will benefit from a very high individual abatement rate, and from advantageous taxation. The tax advantage of life insurance before and after 70 years is not the same, but the situation remains very favorable compared to the normal succession regime.
Indeed, depending on the degree of kinship and the amount inherited, traditional inheritances can be taxed up to 60%. A rate far too high, compared to that of life insurance.
7 – The Possibility Of Choosing Life Insurance Adapted To You
- Overall, life insurance is one of the most profitable savings contracts for a retail investor. But there is actually a very wide variety of contracts, starting with the variations depending on the country where you are.
- For example, Luxembourg life insurance has many advantages over French life insurance, particularly in terms of security.
- When you take out a life insurance policy in Luxembourg, you obtain preferred creditor status. This means that if your insurer goes bankrupt, all of the assets invested are primarily directed toward covering insurance commitments. In other words: towards the insured.
- Additional security that can help you get started in investing.
What Are The Disadvantages Of Life Insurance?
After having listed all the advantages of Luxembourg and French life insurance, it is worth mentioning the disadvantages, which are inevitable for all investment vehicles.
1 – A Declining Yield
- Currently, the main disadvantage of life insurance concerns the rate of return. Especially that of funds in euros, which has been in freefall for many years.
- A rate of 1.46% in 2019 and 1.10% in 2020, against rates of up to 2.80% in 2013: funds in euros are becoming less and less profitable for policyholders.
- It is for this reason that FWU has decided to create life insurance contracts exclusively based on units of account, the value of which changes according to market developments. This choice, coupled with deep-rooted expertise, allows us to offer you better return opportunities. And our investments are not impacted by the fall in funds in euros!
- Thus, even if the profitability of funds in euros does not seem to want to slow down its descent, this is not the case for all life insurance investment vehicles.
2 – Management Fees
These costs are generated by the management carried out by an insurer. Entry fees, arbitration fees, withdrawal fees… It is important to take these fees into account when choosing the right insurer.
Indeed, when you open your life insurance, you have the right between managed management, free management, or management by algorithm, as is the case for our Forward Quant product.
If your insurer asks you for arbitration fees for free management, it may be preferable not to open your life insurance with them.
On the other hand, some arbitrations deserve the management fee. This is for example the case of management by algorithm or management by mandate. You entrust your portfolio of assets to an insurance organization like FWU, which takes care of developing it according to the market and your expectations. In this case, the management fees have a ready-made utility: to make your money grow.
3 – The Risk Of Loss Of Capital
Finally, the last disadvantage of life insurance concerns the risk in terms of loss. Indeed, if you choose to invest in units of account to maximize your chances of inflating your contribution, you necessarily take risks. The market changes and the value of your assets may fall.
- However, the world of finance does not hear the term risk as in common parlance. Financial risk involves the notion of volatility. Volatility is actually the uncertainty about the future value of an asset.
- It, therefore, involves the risk of loss, but also the chance of gain. Volatility is a scale that must be taken into account to secure your investment.
- At Forward You, we follow the recommendations of a logical algorithm based on your investor profile. We thus have a scientific questionnaire that allows us to define the risk model that corresponds to you, ranging from conservative to offensive. We calculate your appetite for risk-taking and deduce the best passive investment strategy for your situation.
- Subsequently, each risk model is associated with a level of guarantee ranging from 0% to 100% of the capital invested. For example, with an end-of-contract guarantee level of 100%, you are sure to recover all of your invested capital.
Take advantage of the benefits of a life insurance contract adapted to your profile, and maximize your investment project!
Conclusion:
Even if savings in life insurance are available at any time, in the majority of contracts it is a long-term investment product. Indeed, their profit increases gradually over the years. If you are looking for a significant return over the long term, it is therefore strongly advised not to proceed with the early redemption of your contract, but to go after the scheduled date. In this way, you give yourself a chance to take full advantage of the return opportunities offered by the financial markets.
Related Search Question:
Is Life Insurance A Good Investment?
Life insurance has advantages and disadvantages, like all investment vehicles. But in reality, the disadvantages are much less compared to the advantages.
If you are wondering why take out a life insurance policy, it is simply because it is the investment medium with the best chance of profitability. And above all, greater flexibility with regard to your profile and your desires in terms of performance.
From risk-taking to the capital invested, including the duration of the contract: open a life insurance policy that suits you, and enjoy all the advantages of this contract!
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