Life insurance is a financial investment that allows the subscriber to save money with the aim of transmitting it to a beneficiary when an event related to the insured occurs: his death or survival. This savings product allows the subscriber to receive interest on his contract according to the capital invested.
- In the event of the subscriber’s life, he remains the beneficiary and holder of the funds and can freely recover the capital and interest
- In the event of the subscriber’s death, the contract will be settled and the capital and interest will be transmitted to the beneficiary (ies) of his choice (children, spouses, partner, brothers and sisters, etc.)
Life insurance is mainly used today as a contract to save money by benefiting from the advantages of the taxation of life insurance combined with those linked to the transmission of wealth. The contracts are opened with the aim of preparing for retirement, building up term capital or anticipating a real estate project.
However, a distinction should be made between death and life insurance. In a death insurance contract, the insurer undertakes to pay a capital or a specific annuity to the beneficiaries designated by the insured in the event that the latter dies before a certain date. Death insurance is generally taken out to allow the family to repay a loan or to pay for the children’s education if the insured dies suddenly.
There are two compartments in a life insurance contract:
- Euro funds that offer a capital guarantee
- Units of account (UC) which do not offer a capital guarantee and which are invested in SICAV, SCI, SCPI, FCP or tracker units, themselves mainly invested in real estate, stocks or bonds.
Funds in Euros.
The euro fund of a life insurance contract is a secure medium which includes a capital guarantee offered by the insurer. The subscriber cannot therefore lose money on this type of fund.
Each year, interest is paid on the contract as of December 31, N. Interest acquired by the subscriber is definitively acquired (ratchet effect). The return on the euro fund consists of a technical rate (guaranteed minimum rate) and profit sharing.
A unit of account (UC) designates an investment medium on a life insurance contract that does not offer a capital guarantee. The subscriber can invest in different asset classes through account units such as stocks, bonds and real estate. A CU can have a negative return in the event of a fall in the financial markets, which generates a capital loss for the subscriber (loss of part of the capital invested).
The shares and bonds are grouped together in collective investment undertakings in transferable securities (UCITS). There are many forms of UCITS (money market, bond, equity, alternative funds, formula and diversified funds).
Behind the term UCITS there are two distinct legal statuses:
- SICAVs (Variable Capital Investment Companies)
- FCP (Mutual Fund)
Finally, we can cite trackers (listed index UCITS) whose performance replicates a financial index (the CAC 40 for example).
For real estate, there are many supports such as:
- SCI (Société Civile Immobilière)
- SCPI (Civil Society of Real Estate Investment)
- OPCI (Real Estate Collective Investment Organization)
The expected rate of return on the units of account is higher than on the euro fund in return for a capital risk.Discover life insurance at 0% entry fees
Taking Out A Life Insurance Policy.
Life insurance contracts have no legal duration. In practice, we advise you to freely set a fixed term which will be extended by tacit agreement from year to year unless you make a denunciation. You also have the possibility of choosing a lifetime according to the contracts.
Investing in The Contract.
It is possible to invest in a life insurance contract in 3 forms:
- The initial payment: It corresponds to the payment you make when you subscribe to the contract. It can be issued by check, transfer or direct debit (depending on the life insurance companies).
- Free supplementary payments: you can put money in your life insurance policy whenever you want
- The scheduled additional payments: You define an amount and a frequency which can be monthly, quarterly, semi-annually or annually to invest in your best life insurance policy. The payments are automatically withdrawn by the insurer from your account. You can interrupt these payments at any time or change the frequency and the amount without tax consequences for the contract.
Please note: there is no obligation in the additional payments. The subscriber can, if he wishes, pay only one single premium (initial payment).
Life Insurance Contract Fees.
There are several categories of fees:
- Entrance fees and fees taken from each payment: these fees can vary from 0% to 5% depending on the contract.
- Management costs: they correspond to the remuneration of the insurer. They are calculated on the total savings created. It takes on average between 0.5% and 1.5% for unit-linked contracts. A distinction is made between the management fees on the euro fund of the life insurance company and the management fees on the unit-linked supports.
- Arbitration fees: fees are deducted from the amount of money transferred from one fund to another. In some contracts, these costs can reach 1% of the amounts arbitrated.
Managing The Life Insurance Contract.
There are several management methods offered by Life Insurance Companies:
- Free management:
You distribute your savings yourself between the various supports available in the life insurance contract according to your investor profile, your profitability objectives and your level of risk. You manage your life insurance contract with complete freedom and remain in control of your asset allocation.
- Managed management:
You give a mandate to your broker or to a management company to manage your contract for you.
- Mandate management:
You do not choose the media that will compose your life insurance policy yourself. You delegate the management of the life insurance contract to a management company approved by the life insurance company. After defining your risk profile, the portfolio managers will select, according to market opportunities, the investment media best suited to your management orientation.
Recover The Money On His Contract.
As we have already said in this guide, the sums placed in a life insurance contract are never blocked and at any time, you can withdraw money. This withdrawal can take many forms:
- Partial redemption (free)
At any time you can make partial withdrawals or redemptions. If the beneficiary has accepted his designation since December 18, 2007, partial redemptions (and advances) can only be made with his agreement. Upon receipt of the redemption request, the insurer has two months to pay the funds. After this period, the sums bear interest. During the partial redemption, you must stipulate the tax option, either the flat-rate levy or the income tax.
Concretely, you send a partial redemption form to E-Patrimoine or you make this redemption online.
For the best option, see the life insurance tax page
- Scheduled partial redemptions
The life insurance investment offers the subscriber the possibility of scheduling partial redemptions to, for example, build up regular income for his retirement. There is usually a minimum amount on the contract. The frequency and the amount meet the same rules as for free partial redemption.
- The advance
An advance is a loan from the life insurance company for interest. Faced with a one-time need for money, it may be better to ask for an advance rather than making a partial purchase. An advance is not taxable and does not decrease the value of the contract. Its real cost is not important because the subscriber leaves his money on the contract which continues to generate interest.
Close Your Life Insurance Contract.
If the subscriber wishes to close his life insurance contract, he must make a total surrender. The insurer then pays the subscriber the surrender value of his contract. In the Epargne Evolution life insurance contract, there are no surrender penalties.
We advise you not to make a total buy-back but to leave the minimum requested by the Insurance Company because you keep the tax history and you can always make a new payment if necessary.