Life insurance is no longer the greedy investment you imagine it to be

Posted July 4, 2022, 7:00 am

Life insurance often looks like an investment with outdated features and disappointing performance. Apriori is especially important among young investors, who often prefer a securities account to invest in the stock market, or other forms of investment such as crowdfunding, or even cryptocurrencies for the less risk-averse.

However, the life insurance that entered the market in 2022 will not have much in common with what we knew in the 20th century. Gone are the days when life insurance offered only a single investment vehicle and reflected payment costs that are now prohibitively high at a time when contract management is fully computerized. Only taxation remains, still as attractive. At the same time, the offer of services has expanded significantly.

In addition, many fintechs (financial and technology companies) put this savings system at the core of their service offerings. Success that does not depend on chance: life insurance evolves with the times, so new contracts give access to a very interesting range of support (investment funds) to increase your savings regardless of your projects.

Simplified management (online)

Buying life insurance has never been easier. Online banks, brokers and fintech companies now allow you to purchase life insurance directly online with a greatly simplified underwriting process.

Traditional savings participants, such as established retail banks and wealth management consultants, however, continue to offer a paper subscription method.

As for the day-to-day management of the contract, here again, procedures have become much simpler in recent years. Brokers, banks and insurance companies provide web applications that allow depositors to manage their contract with a few clicks. Whether it’s making a payment, arbitrage between investment funds or partial redemption, most of these transactions can now be done online.

Reduced fees

Digitization of financial services allows saving money, which directly benefits depositors. This phenomenon is particularly noticeable in the case of life insurance. Indeed, most of the online ones today do not charge fees for money transfers and arbitration fees.

On the side of traditional bank branch chains, which suffer from higher fixed costs, life insurance companies continue to bear the cost of benefits. However, advisers can apply a discount to these commissions, a commercial gesture that they are all the more inclined to do for large sums.

In a context where Euro funds are expected to perform around 1 to 1.5% in 2021, compared to more than double a few years ago, payout fees are becoming increasingly difficult to pass on to depositors. Also because the latter are better and better informed thanks to the specialized press and life insurance comparisons easily available on the Internet.

The commission reduction is not limited to the transfer fee and the arbitration fee. Efforts are also focused on management fees. Investors can now find life insurance with unit-linked management fees of 0.50 to 0.60% per annum. While the least attractive contracts charge almost 1% management fee. The main thing is to save several thousand euros during the term of the contract.

Therefore, savers are interested in attracting competition. Moreover, life insurance with competitive rates does not make any concessions in the quality of services and investment support.

Support for investing in real estate, shares, research and development, etc.

In the past, single life insurance was commonplace. Then the saver had no choice but to transfer his capital to the Eurofund, which is directly managed by the insurer. Hence the confusion between life insurance (envelope) and Eurofund (support).

We regularly hear that life insurance rates are falling. Which doesn’t make sense because the performance of a life insurance contract depends on the support that is contained in the contract and that you have invested in. Only the efficiency of European funds decreased.

The good news is that all new contracts now have multiple supports. So it is easy to diversify your contract in vehicles other than the Eurofund. For example, if you invested 100% in the World Tracker (ETF) in 2021, the annual performance of your life insurance was +31%. And about 5% by investing in real estate SCPI.

Moreover, depositors can now easily access open architecture life insurance. This means that the depositor can invest, thanks to his contract, in investment funds that are managed by third-party management companies (except the insurer).

Therefore, the choice of available mass media has expanded significantly. Individual investors now have access to contracts offered by hundreds of mutual funds.

From an investment perspective, exchange-traded index funds, also known as trackers or ETFs (exchange-traded funds), are very popular among investors. The success of these funds can be attributed to two reasons: these funds have very low management fees and deliver higher performance than most actively managed funds.

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

These funds allow depositors to invest their savings according to their ethical, social and environmental beliefs (companies that emit less CO2, maintain parity in boards of directors, etc.).

Note

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BIS note

This forum was written by a co-author outside the editorial office. Les Echos START does not pay him, just as he did not pay for the publication of this text. Therefore, the selection for publication was made solely according to editorial criteria.