Life insurance. This can make one think of a kind of opaque solution reserved for seniors with various clauses in the event of death, life insurance is nothing more or less than an investment medium on which one can place his money, like the stock market, a livret A or a real estate investment.
Not just any medium, however, since it is one of the favorites of French people with the Livret A booklet: we are around 60% of French people who have life insurance in our heritage, so it is a the most popular supports because unlike the very rudimentary booklet A, life insurance is a complex support, offering a lot of possibilities and allowing a much more dynamic management of its patrimony.
I personally am a big fan of life insurance because it combines several winning criteria in my capital construction, in terms of performance, diversification, risk management and tax optimization.
Why open life insurance?
Life insurance offers you several advantages, not all of them are listed here, but in my opinion, the main advantages of life insurance are:
With a life insurance contract, you can invest in stocks as well as bonds, gold or real estate (via SCPI) with the same contract and the same funds.
You have to see life insurance as an empty shell in which you choose this or that type of investment, allowing you to have significant diversification, and therefore increased security. You can also adapt the level of risk to your strategy by investing in both risky and safer securities.
The simplicity :
Do you want to invest in telecoms because you are convinced that the sector will evolve a lot in the future? ((in reality I advise against it!)
Rather than buying shares in significant companies in the sector, you can opt for SICAVs (Variable Investment Company) or UCITS (Collective Investment Placement Options) which are companies whose capital is invested in companies in this sector (companies chosen by professionals whose job it is) and whose performance will generally reflect the performance of the sector in question.
There are all kinds and all profiles in your life insurance contract, specialized as the previous example with telecoms or emerging countries but also general / wealth with a balanced allocation and without specialization.
Performance AND safety:
Obviously subject to choosing the right funds, you can get very interesting performances, while keeping a certain margin of safety.
You can for example opt in your life insurance policy for an allowance to 50% on a secure background, 30% on a balanced background and 20% for a more risky fund: you will then benefit from a good performance of your savings thanks to the riskier values while ensuring that you leave, even in the event of a stock market cataclysm with at least 50% of your savings, something impossible during a stock market investment for example.
Also note that the French state insures bank customers in the event of bankruptcy up to € 60,000 per life insurance contract: even in the event of a stock market disaster and bankruptcy of your bank, you will find your funds.
Like all income, those you earn with a life insurance policy are taxable as part of your income tax, life insurance is no exception. However, life insurance offers an interesting tax framework for 2 reasons:
Taxation applied only in the event of withdrawal: imagine that you put € 10,000 on your life insurance contract and that thanks to its good performance (10%), you earn € 1,000 in interest.
Well, these 1000 € will only be taxed if you decide to withdraw them from your life insurance contract to put them in your current account for example!
If you leave them on the contract, they will be added in full to your starting funds which will make € 11,000 which will generate (with the same performance) € 1100 the following year, thus increasing your savings exponentially and not increasing the amount of your taxes.
So you benefit from this great tool of compound interest, which Albert Einstein himself said was one of the greatest mathematical discoveries of all time.
Degressive taxation : now imagine that you decide to withdraw this money from your life insurance: the amount of tax you will pay varies according to the age of your contract: (scale at 1er July 2012)
- From 0 to 4 years old: 35% interest withdrawn (350 € in our example)
- From 4 to 8 years old: 15% interest withdrawn (150 € in our example)
- After 8 years: 7.5% + reduction of € 4,600 (i.e. € 0 in our example)
You will therefore understand that it is very interesting to open a life insurance contract as soon as possible in order to be able to benefit from this declining taxation on your future withdrawals!
The funds remain available:
Many people believe that money put on a life insurance policy is frozen or that it is subject to large taxes. It is not so !
Withdrawing funds from a life insurance contract only takes a few days and they are in no way blocked and in no case overtaxed: you only pay the taxes linked to a withdrawal and according to the scale above.
The case of the euros fund
The euro fund is the star of investments in a life insurance contract and has largely contributed to its success because it brings a strong argument: security.
Indeed, a euro fund is a secure and guaranteed capital investment: you cannot lose a single penny of the amounts you put into it!
The counterpart is that these funds which are massively invested in euro bonds (hence its name) low risk and low yield give less and less good performances over time: the euro fund of my life insurance contract Fortuneo for example was paid up to 4.5% in 2008 and this remuneration is no more than 3.6% in 2012.
This erosion of performance of the euro fund is global and will probably continue in the years to come, but the euro fund remains interesting if it is used correctly, namely as a replacement / complement to its booklet A:
- Quick availability: certainly a little longer than a booklet A but it is still available in about ten days from my observations.
- Average performance but better than booklet A: 3.6% vs 2.25%, after that depends on the age of your contract for the taxation of capital gains, again: open one quickly to make a date!
- No ceiling: even if this ceiling was raised by the Ayrault-Holland government (one wonders why, moreover, given that less than 15% of the booklets A reach this ceiling) the booklet A remains capped and you cannot use it to save large sums such as the sale of an apartment for example. In reality, this is a chance that will save you from putting too much money on a medium as dynamic as the A booklet!
Personally, I kept a booklet A with about 1 month of current expenses in case of extreme emergency (the funds are on my current account in 2 days) and the bulk of my security fund on the euro fund of my insurance- life.
Which life insurance to choose?
The examples of interest rates I have just given you are not uniform and relate only to those in my life insurance policy with Fortuneo.
I chose this contract after comparing the services for a long time and I am not disappointed: the management is very simple via the web interface, the performance of the euro fund is among the best (if not the best) of the market, the indicators given are sufficient… I am generally very satisfied with it and I can only recommend it to you.
This is possible thanks to the fact that in addition to a good allocation and content management, it is an online bank with low operating costs which allows to offer better rates / services than structures heavier than traditional banks!
If you want to open a life insurance contract with Fortuneo, I can sponsor you by following this link: Fortuneo offers us 100 € each through this process (against 0 € if you open a contract alone) as much to benefit!
If you opt for another life insurance, I advise you in all cases to go through a contract that you can manage on the internet: this will avoid large files to fill, hours on the phone and other administrative hassles and also take advantage of the best performances of the moment against the background of euros.