Savings return: life insurance is doing well
In recent years, the yield on savings products has been decreasing. This decrease is explained by two factors. On the one hand, the low inflation observed in recent years in France. On the other hand, the accommodating policy of the central banks having led to an overall drop in rates. If this situation is advantageous for people taking out a loan – borrowing rates have never been so low – the situation is less advantageous for savers.
The rate of savings books is now less than 1%. The yield on regulated passbooks such as passbook A and the sustainable development and solidarity passbook stood at 0.75% at the end of 2018. The return on bank passbooks is even lower (excluding temporary promotion) and taxed. As a result, the net inflation return of the booklets is now negative. Faced with this observation, life insurance appears to be the most effective investment envelope to obtain a good return on your savings, or at least protect yourself from inflation.
The Benefits of Life Insurance
As we mentioned in the introduction, life insurance has two advantages: great flexibility in asset allocation and attractive taxation. Let's see these 2 points in more detail.
Diversify your savings
First of all, life insurance is an envelope within which the investor has the possibility of accommodating a large number of financial products. Savers who want above all secure financial products will be able to turn to funds in euros, which many French people are in favor of. With funds in euros, the capital invested is guaranteed by the insurer. The risk of capital loss is therefore nonexistent when investing in funds in euros, in particular when the insurer is reputed (Generali, Crédit Mutuel Suravenir, etc.).
Investors willing to invest for the long term can direct their savings towards more profitable but also more volatile investment vehicles than funds in euros: the units of account. It is possible to invest in real estate supports, bond funds or even equity investment funds. It is therefore possible to invest in all asset classes within a life insurance contract.
Taxation of life insurance
Taxation is the second strong point of life insurance. When the age of the life insurance contract reaches 8 years, it is possible to make withdrawals without paying capital gains tax. An allowance of 4,600 euros (doubled for a married or PACS couple) per year applies on the share of gains in withdrawals made. Beyond this reduction, the level of taxation is also advantageous, a rate of 24.7% is applicable if the saver opts for the single flat-rate withdrawal. This rate is lower than the flat tax of 30% applying to most capital income since the last finance law (2018).
Life insurance is therefore an excellent way to invest in order to build up capital for retirement and allow an annual rent with lenient taxation. Finally, note that life insurance also benefits from attractive tax advantages for the transmission of wealth, especially in the context of an inheritance (life insurance is deemed to be outside the estate).
The best life insurance policies
Not all life insurance policies offer the same investment opportunities or the same level of fees. It is therefore essential to compare contracts before taking out life insurance. Also, the performance of different funds in euros varies greatly depending on the insurer in charge.
The performance of euro funds
Euro funds offer a guarantee on the value of the capital invested, but the performance of these funds is modest, although higher than that of the booklets. Thus, the average return on funds in euros stood at 1.5% in 2017, but the best funds in euros performed much better. For example, the euro funds of online banks Boursorama and Fortuneo achieved a performance of 2.10% and 2.80% respectively in 2017. These returns are much better than those of the market. And free of charge on payment!
The second important point to consider before purchasing life insurance is the level of fees. While many traditional banks levy payment fees, online banks stand out with an attractive pricing policy: 0% payment fees at Boursorama, Fortuneo, Linxea, or even ING Direct.
Also, the applicable management fees for account units are 0.60% on average in online banking (less than 1% of the average of traditional banks). In terms of management fees, online banks are nevertheless outdistanced by Linxea. With this online broker specializing in life insurance, the management fees applied to outstanding amounts invested in unit-linked products are only 0.50% within their flagship Linxea Spirit contract.
The choice of units of account
The last essential point for choosing the right life insurance policy is the choice of units of account. The best contracts give access to several hundred different account units. The Boursorama Vie and Fortuneo contracts give access to 280 and 190 units of account respectively. This supply of supports is therefore much larger than the traditional offer of traditional banks. For example, Société Générale's Essential Maple contract only gives access to 50 units of account. That said, if online banks offer an attractive choice of units of account, the prize again goes to a specialized broker. The Linxea Avenir contract gives access to 600 account units.
The best choice in life insurance
In conclusion, online banks offer very interesting life insurance contracts: the management fees are low, there are no fees on payment, the performance of funds in euros is at the top of the basket and the he offer of units of account is very complete. Savers wishing to invest mainly in a euro fund will find their happiness among the contracts offered by online banks. On the other hand, investors looking for specific investment funds will be able to turn to a specialized online broker like Linxea in order to access an even wider choice of account units.