Good news, you have several strings to your bow to preserve the performance of your life insurance policy, or even improve it. Assurancevie.com gives you three avenues to explore, understand and why not test!
FIRST MEANS: Fees
Supporting or even boosting the performance of your life insurance contract without taking on additional risk: this is a frequent expectation… and quite possible by controlling the costs of your contract. Because it must be understood that in the context where the return on funds in euros is eroding each year, the costs weigh more and more on the performance. Luckily, there are contracts at reduced costs, such as those distributed by online brokers such as Assurancevie.com.
One example is sufficient to demonstrate the impact of fees on profitability.
Mr. CAPITAL wishes to invest €10,000 in a life insurance contract.
– He is offered Contract A for which the fees on payments are 5%. By depositing €10,000, the entry fee will be €500. From then on, the €10,000 paid will become €9,500 invested.
– On the other hand, the Contract B of an online broker is free of entry fees on all payments. The €10,000 paid then becomes €10,000 invested.
From the outset, there is a €500 difference between these two products. In view of the average rate of return on funds in euros (1.20% in 2021 excluding social security contributions), it would take at least 5 years to catch up with these entry fees.
A few years ago, when returns on euro funds exceeded 5%, only a few months were enough.
Don’t forget the annual management fees
Alongside the payment fees, annual management fees are applied. It may be relevant to take a closer look at them, because they are the ones that weigh down the performance the most, in particular because of their recurring nature.
Schematically, each year, the insurer charges fees on the fraction invested in the fund in euros and on that invested in units of account. Some contracts show similar management fees, whether for the euro fund part or the unit-linked part. But others make a distinction. In this case, the annual management fees on the units of account are often lower.
For your information, annual management fees vary on average between 0.4% and 1%, depending on the contract.
Let’s take a new example : we present two contracts to Mrs. MONNAIE who wishes to invest €10,000 over 11 years (average holding period of a life insurance contract).
– Contract A does not charge any entry fees and 0.60% annual management fees.
– Contract B is also free of entry fees but its annual management fees amount to 1.20%.
Let’s also say that the contracts generate an average annual performance of 3%.
Ms. MONNAIE will pay a total of €862 in fees over the 11 years of ownership with contract A. Against €1,674 with contract B. Another reading, the value of contract A will be €12,981 (+29, 81%) after 11 years, compared to €12,168 (+21.68%) for contract B. This is a difference of €813, or more than 8 points.
SECOND MEANS: Units of account
Units of Account (commonly called by their acronym: UC) are investment vehicles accessible in multi-support life insurance contracts alongside funds in euros. They make it possible to invest in the financial markets (via UCITS) and real estate (via SCIs or even SCPIs).
Unlike funds in euros, units of account do not have a capital guarantee. It is for this reason in particular that units of account have long been shunned. Probably also because they were misunderstood and suffered from prejudice.
Thus in 2011, units of account accounted for only 13% of life insurance payments according to France Assureurs. In other words, the fund in euros alone drained 87% payments.
If the French have always had a love for life insurance, they loved the fund in euros even more!
Since then, life insurance professionals have been teaching units of account. At the same time, insurers restricted access to their funds in euros by imposing exposure to units of account. It should also be noted that they have made a great effort in terms of the financial/property offer of their life insurance contracts. They have enriched it, so that the choice of units of account has now become wide and diversified.
It showed in the numbers. The euro fund is still the favorite… but the unit-linked units are gaining ground. Thus in 2021, France Assureurs reports that unit-linked accounted for 39% of life insurance payments (44% for the month of December alone) (1) .
So how can unit-linked investment boost life insurance profitability? Because, theoretically, units of account perform better than funds in euros over the long term… However, there is no financial miracle. In return, you have to accept taking more risk, which can materialize in a capital loss. This is why in finance we are used to talking about the risk-return pair. An inseparable couple. However, not all CUs are necessarily associated with high risk. Some, by virtue of their investment strategy and their theme, display an attractive risk-return ratio.
And this is all the more true at the moment, in particular because the range of accessible units of account is rich. Units of account now form a large, heterogeneous family.
For example, at Assurancevie.com, our contracts give you access to a large number of units of account to better meet your needs and cope with the slow erosion of returns from funds in euros.
They offer in particular:
– Equity funds : As their name suggests, these funds invest mainly in equities. They are then classified according to their investment philosophy: geographical areas, sectors of activity, company size, management styles, etc.
– Bond funds : These funds invest in bonds. Some favor government bonds (sovereign bonds), others give pride of place to corporate bonds (corporate bonds). Finally there are convertible bond funds (bonds that can be converted into shares).
– Diversified funds with flexible management: These vehicles invest in different asset classes (equities, bonds, money market, etc.) in proportions that vary according to the financial environment, the opportunities and the manager’s convictions.
– Trackers : Also called ETFs (Exchange Traded Funds), trackers are listed index funds that reproduce the major indices. There are trackers on all equity markets (CAC40, S&P500, etc.), but also on other underlyings, such as commodities or bonds.
– SCPIs (Sociétés Civiles de Placement Immobilier) : Their objective is to buy, maintain and manage rental property assets of companies on behalf of their partners.
– And also SCIs (Sociétés Civiles Immobilières) : They invest in direct real estate, units of unlisted real estate funds (SCPI and OPCI), listed real estate companies and real estate derivatives while maintaining a pocket of cash. It is a diversified fund of funds.
THIRD MEANS: Performance bonuses for funds in euros
Formulated by insurers, euro fund performance bonus offers are now common. The promise is simple: if you meet the bonus conditions, the return on your fund in euros will be subject to additional remuneration!
The increase varies from one offer to another. It can be increasing and progressive, until it represents twice the initial return of the fund in euros.
To qualify for these gifts, you must meet criteria defined by the insurer, first and foremost an investment in units of account. Generally, the higher the exposure to unit-linked units, the more significant the mark-up will be (keep in mind that unit-linked units present a risk of capital loss).
Some bonuses also require a minimum amount of payment, arbitration, or even outstanding.
Finally, some insurers pay the bonus automatically if all the conditions are met. Others require you to complete a specific document.
If you have not already done so, find out from your adviser whether or not there is a bonus and the conditions for obtaining it.
