Life insurance is no longer the dusty investment you imagine

Published July 4, 2022, 7:00 AM

Life insurance is often seen as an investment with outdated features and disappointing performance. A priori is especially important among young savers, who often choose to turn to 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, life insurance, introduced to the market in 2022, no longer has anything in common with what we knew in the 20th century. Gone are the days when life insurance offered only one investment vehicle and showed payment costs, which are now prohibitively high at a time when contract management is fully computerized. All that remains is taxation, just as attractive. While the service offer has been significantly enriched.

Moreover, many Fintech (financial and technology companies) put this savings system at the heart of their service offering. Success that doesn’t owe anything to chance: life insurance evolves over time, so new contracts provide access to a very interesting set of support funds (investment funds) to keep your savings growing, whatever your projects.

Simplified management (online)

Purchasing life insurance has never been easier. Online banks, brokers and fintech companies now allow you to take out life insurance directly on the Internet, greatly simplifying the subscription process.

However, traditional savings players such as established retail banks and wealth management advisors continue to offer the paper subscription method.

As for the day-to-day management of the contract, the procedures have been greatly simplified in recent years. Brokers, banks and insurance companies provide web applications that allow depositors to manage their contracts in a few clicks. Whether it’s payment, arbitrage between investment funds, or partial buyouts, most of these transactions can now be done online.

Reduced Fees

The digitization of financial services generates cost savings that directly benefit savers. This phenomenon is especially noticeable in the case of life insurance. Indeed, most of those on the network now have no money transfer fees and arbitrage fees.

With respect to traditional branch banking networks, which suffer from higher fixed costs, life insurance companies continue to incur payment costs. However, consultants may apply a discount on these fees, a commercial gesture that they are all the more inclined to do in the case of large amounts.

With euro funds showing returns of 1 to 1.5% in 2021 compared to more than doubling a few years ago, payment fees are 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 readily available on the Internet.

The fee reduction is not limited to money transfers and arbitration fees. Efforts are also focused on management fees. Savers can now find life insurance with management fees ranging from 0.50% to 0.60% per annum. While the least attractive contracts charge almost 1% management fees. The key is saving several thousand euros over the life of the contract.

Therefore, investors are extremely interested in introducing competition into the game. Moreover, life insurance with competitive rates does not make concessions regarding the quality of services and investment support.

Support for investments in real estate, stocks, SRI, etc.

In the past, monosustaining life insurance was commonplace. The investor then had no other choice but to invest in a euro fund, which is directly managed by the insurance company. Hence, perhaps, the confusion between life insurance (envelope) and the euro fund (support) arose.

We regularly hear that the effectiveness of life insurance is declining. Which does not make sense, since the performance of a life insurance contract depends on the support that is contained in the contract and in which you have invested. Only the performance of euro funds declined.

The good news is that all new contracts are now multi-maintenance. So it’s easy to diversify your contract into media other than the euro fund. For example, if you invested 100% in a global tracker (ETF) in 2021, your life insurance annualized return was +31%. And about 5% through investment in SCPI real estate.

What’s more, savers can now easily access life insurance with an open architecture. This means that the investor can invest, thanks to his contract, in investment funds managed by third-party management companies (other than the insurer).

Thus, in terms of the range of media available, the choice has expanded considerably. Individual investors 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 among savers. The success of these funds can be attributed to two reasons: these funds have very low management fees and provide higher performance than most actively managed funds.

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

These funds allow contributors to invest their savings in accordance with their ethical, social and environmental beliefs (companies that emit less CO2, have parity on boards of directors, etc.).


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BIS note

This forum was written by a member outside the editorial board. Les Echos START does not pay him and does not pay for the publication of this text. Therefore, the choice for publication was made solely on editorial criteria.