Life insurance is no longer the dusty investment you imagine

Posted on July 4, 2022, 7:00 AMUpdated on July 4, 2022, 3:25 p.m

Life insurance often assumes the image of an investment with outdated features and disappointing performance. A priori particularly significant among young savers who often prefer to return to a securities account to invest in the stock market, or other forms of investment such as crowdfunding, or even cryptocurrencies for less risks.

However, marketed life insurance in 2022 no longer has much to do with what we knew in the 20th century. Gone are the days when life insurance offered only an investment vehicle and showed payment costs that are now prohibitive at a time when contract management is fully computerized. Only the taxation remains, still so attractive. While the service offer has been greatly enriched.

In addition, many Fintech (financial and technological companies) place this savings system at the heart of their service offer. A success that owes nothing to chance: life insurance evolves with the times, so the new contracts give access to a very interesting range of supports (investment funds) to grow your savings, whatever your projects.

Simplified management (online)

Buying life insurance has never been easier. Online banks, brokers and Fintechs now make it possible to take out life insurance directly online, with a very simplified underwriting process.

Traditional savings players such as established retail banks and wealth management advisors, however, continue to offer a card subscription method.

As for the day-to-day management of the contract, here again, the procedures have been greatly simplified in recent years. Brokers, banks and insurers provide web applications that allow savers to manage their contract in a few clicks. Whether it is to make a payment, an arbitration between investment funds or a partial redemption, most of these operations can now be carried out online.

Reduced rates

The digitization of financial services enables cost savings that directly benefit savers. This phenomenon is particularly visible in the case of life insurance. In fact, most of those online now have no remittance fees and no arbitration fees.

On the side of traditional bank branch networks, penalized by the higher fixed costs, life insurance companies continue to bear the payment costs. However, advisors can apply a discount on these fees, a business move they are more inclined to do for large amounts.

In a context where funds in euros make performances of about 1 to 1.5% in 2021, compared to more than double a few years ago, the payment fees find it increasingly difficult to pass on to savers. Also because the latter are better and better informed thanks to the specialized press and life insurance comparisons easily accessible on the Internet.

The fee reduction does not stop at remittance and arbitration fees. Efforts are also focused on management fees. Savers can now find life insurance with unit-linked management fees of 0.50 to 0.60% per annum. While the less attractive contracts charge almost 1% in management fees. The key is a saving of several thousand euros over the life of the contract.

Savers therefore have every interest in putting competition into play. Especially since life insurance with competitive rates does not make concessions on the quality of services and investment supports.

Support for investment in real estate, shares, SRI, etc.

In the past, single life insurance was common. The saver then had no choice but to allocate his capital to the euro fund managed directly by the insurer. Hence the confusion between life insurance (the envelope) and the euro fund (the support).

We regularly hear that life insurance performance is declining. That does not make sense, since the performance of the life insurance contract depends on the supports that are included in the contract and on which you have invested. Only the performance of funds in euros has fallen.

The good news is that now all new contracts are multi-support. So it is easy to diversify your contract on media other than the euro fund. For example, if you invested 100% in a Global ETF in 2021, the annual return on your life insurance was +31%. And about 5% investing in real estate SCPI.

Even better, savers can easily access open architecture life insurance. This means that the saver can invest, thanks to his contract, in investment funds managed by third-party management companies (other than the insurer).

As for the range of accessible media, the choice is therefore considerably widened. Individual savers now have access to contracts offering hundreds of investment funds.

In terms of investment, listed index funds, also called trackers or ETFs (exchange-traded funds), are very popular with savers. The success of these funds can be explained by two reasons: these funds have very low management fees and provide a higher yield than most active management funds.

Another strong trend is the rise of responsible funds such as funds labeled SRI (Socially Responsible Investment). These funds only invest in companies that respond positively to the social and ecological criteria defined by the label.

These funds allow savers to invest their savings in accordance with their ethical, social and ecological convictions (companies that emit less CO2, that respect equality in the Boards of Directors, etc.)

To note

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BIS note

This forum was written by an outside contributor. Les Echos START does not pay him, nor did he pay to publish this text. The choice to publish is therefore made solely on editorial criteria.

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